midterm 1 deck
Real Estate And Urban Land Economics 306 with Mccabe at University of Wisconsin - Madison
About this deck
By: Ernest Lee
Textbook:
Real Estate Principles: A Value Approach
Created: 2009-10-12
Size: 88 flashcards
Views: 132
Textbook:
Real Estate Principles: A Value ApproachCreated: 2009-10-12
Size: 88 flashcards
Views: 132
About StudyBlue
STUDYBLUE makes things that make you better at school.
Things like online flashcards with photos and audio.
Things like personalized quizzes and friendly reminders about when (and what) to study next.
Think of it as a digital backpack™: access to all of your study materials online and on your phone.
STUDYBLUE exists to make studying efficient and effective for every student, for free. Join us.
“I have used this website for three exams, and I see a huge difference in my test results.”
Naj
Naj
Sign up (free) to study this.
Real Estate - What is it?
1) "The productive elements of real estate depend on the voids, not the solids."
2) Real estate is the SPACE - the enclosure that shelter activities
2) Real estate is the SPACE - the enclosure that shelter activities
The Meaning of Real estate
1) physical asset
2) right from owning property
3) profession and an industry
2) right from owning property
3) profession and an industry
Real Estate Physical asset
- The land and all the permanent attachment to the land
- Tangible versus intangible
- Improvements on the land, improvements to the land
- Real Property versus personal property
- Tangible versus intangible
- Improvements on the land, improvements to the land
- Real Property versus personal property
Real Estate - Ownership rights
Owning real estate give you certain rights: bundle of rights
- right to use/occupy/enter it
- right to sell it
- right to lease it
- right to give it away
- right to do all or none of these things
- right to use/occupy/enter it
- right to sell it
- right to lease it
- right to give it away
- right to do all or none of these things
bundle of rights
- Fee simple interest: implies absolute ownership
- Leased fee and leasehold estates: when a property is leased, the right to use/occupy is transferred to the tenant. The landlord has leased fee interest, and the tenant has a leasehold interest.
- Leased fee and leasehold estates: when a property is leased, the right to use/occupy is transferred to the tenant. The landlord has leased fee interest, and the tenant has a leasehold interest.
Real Estate markets and participants
- Users market: user = owner/renters, suppliers = developers, builders..etc
- Capital markets: Real estate as alternative investment
- Government: zoning, buildings codes, property taxes...etc.
- Capital markets: Real estate as alternative investment
- Government: zoning, buildings codes, property taxes...etc.
Real Estate Markets - Characteristics
- Localized markets because heterogeneous, immoblie, segmented
- markets hardly ever in balance
- incomplete market information
- high value asset
- long economic life
- high transaction cost
- traditions
- markets hardly ever in balance
- incomplete market information
- high value asset
- long economic life
- high transaction cost
- traditions
Investment decisions
- non monetary benefits: buying a house or having headquarters
- monetary benefits: annual income (NOI) and proceeds from sale
- incremental decisions
- monetary benefits: annual income (NOI) and proceeds from sale
- incremental decisions
Investment Risk
- Decisions to invest $ today is based on expectations in future
- Some RE investments are more risky than others (hotels, restaurants)
- Some RE investments are more risky than others (hotels, restaurants)
Real Estate Risk
- costly to enter and exit market (time and money)
- RE is illiquid - can't sell quickly (may have fewer buyers)
- uncertainty of cost (renovation, land dev)
- uncertainty of value (future demand - SP, rents)
- more risk lowers value of property (higher return/yield required)
- RE is illiquid - can't sell quickly (may have fewer buyers)
- uncertainty of cost (renovation, land dev)
- uncertainty of value (future demand - SP, rents)
- more risk lowers value of property (higher return/yield required)
Investment value vs appraisal
- Investment value: value to you, based on your expectations
- Appraisal if often for "market value": most probable selling price, typical buyer and seller
- Appraisal if often for "market value": most probable selling price, typical buyer and seller
Nature of property rights
- When we purchase property, really purchasing the rights of owning real estate
- Rights: claims or demands that our gov't is obligated to enforce
- Right to give real estate value include: the right to prevent otehres from using our property without permission, the right to use the property ourselves, the right to dispose of it as we wish
- Rights: claims or demands that our gov't is obligated to enforce
- Right to give real estate value include: the right to prevent otehres from using our property without permission, the right to use the property ourselves, the right to dispose of it as we wish
Real vs Personal Property
- Real Property: rights in land and its permanent structure
- Personal Property: All other property, personal and household goods, intellectual property, music
- Personal Property: All other property, personal and household goods, intellectual property, music
FIxtures
Real property that formerly was personal property (refrigerator, microwave..etc.)
life Estate
can't sell property post death, lose property when die
Nonpossessory Interest
- Easement: the right to use land for a specific and limited purpose
- Restrictive covenants: Covenants that impose restrictions on land use; created at conveyance of land to a new owner
- liens: an interest in property as security for an obligation
- Restrictive covenants: Covenants that impose restrictions on land use; created at conveyance of land to a new owner
- liens: an interest in property as security for an obligation
Easements: non-possessory interest
- appurentant: a right to use that a (dominant) parcel of land over an adjacent (servient parcel) ...ex: driveways
- Easements typically "run with the land" the rights and obligations are inseparable from parcel involved.
- Easements typically "run with the land" the rights and obligations are inseparable from parcel involved.
Easement in gross (commercial easement)
there is a servient parcel, but no dominant parcel.
license
a grant of permission, not a real estate interest
Restrictive covenants (deed restrictions)
- covenants that impose restrictions on land use; created at conveyance f land to a new owner
- two methods from creation
1) restriction in a deed conveying a single parcel of land to a new owner
2) Restrictions impose on a entire subdivision at its creation
- two methods from creation
1) restriction in a deed conveying a single parcel of land to a new owner
2) Restrictions impose on a entire subdivision at its creation
Lien
An interest in property as security for obligation (usually a debt)
General Liens
arise from events unrelated to the property
Specific liens
Arise from ownership and use of the property
Co-ownership
Residence shared by multiple owners
Tenancy in common
the default form of ownership, if no further direction is given, an undivided share of the whole
Joint tenancy
An undivided shre of teh whole, plus "survivorship' rights
Tenancy by entity
joint tenancy for husband and wife
Condominium
sole ownership of unit and tenancy in common ownership of "common elements"
Cooperative
personal property (shares in a corportaion and the rights they convey) deemed to be RE
community property
a system of co-ownership for married couples in a minority of states
Timeshare
owning property for a specific time
Reasons for complexity of the conveyance of Real estate
- real property a complex bundle of rights
- rights to land are enduring: rights available today depend on transaction long ago
- Land is a continuous surface: bonderies not obvious or natural
- rights to land are enduring: rights available today depend on transaction long ago
- Land is a continuous surface: bonderies not obvious or natural
Deed
a special, written contract for conveying permanent interest in real property
Grantor
Person or entity conveying real property:
- must be of legal age
- must be legally competant
- must sign deed
- must be of legal age
- must be legally competant
- must sign deed
Grantee
Recipient of Real property:
- no need to legal of age
- no need to competent
- only need to be identifiable
- no need to legal of age
- no need to competent
- only need to be identifiable
covenants
legally binding promises
three main convents
1) covenant to seizin: grantor has good title and right to convey it
2) Covenant of against encumbrances: no encumbrances except as noted in deed
3) covenant of quiet enjoyment: no one with a better claim to title
2) Covenant of against encumbrances: no encumbrances except as noted in deed
3) covenant of quiet enjoyment: no one with a better claim to title
Acknowledgment
confirmation that grantor acted voluntarily
Delivery
observable, verigiable intent that deed is to be given to grantor
Deeds differ by number of covenants
- warranty deed
- special warranty deed
- deed of bargain and sale
- quitclaim deed
- special warranty deed
- deed of bargain and sale
- quitclaim deed
Ways title can transfer
- voluntary conveyance by deed: ordinary sale and transfer of title
- involuntary conveyance by deed: death, bankruptcy, divorce, foreclosure
- involuntary conveyance by deed: death, bankruptcy, divorce, foreclosure
Doctrine of constructive notice
cannot be bound by what you cannot know, but can be bound by what you COULD know
Recording statutes
a contract recorded in public records is considered known
Statute or frauds
contract must be written to be enforceable
actual notice
open, continues, actual possession of property
Title
collection of evidence indicating a particular person(s) as holder of the "fee"
Title search
examining public records to construct "chain of title"
Evidence of title
assurance of a good or marketable title
marketable title
claim to title regarded as free of reasonable doubt
two main forms of "evidence of title"
- title abstract with attorney's opinion
- title insurance commitment
- title insurance commitment
Externalities
Impact of one land use on neighbors (spill over effect)
incomplete information
about properties, how well was the building built?
locational monopolies
right of ways for road - critical piece of land needed
Eminent domain
right of the government to acquire private land, without the owner's consent, for public use, with due process and just compensation
building codes
minimum standards but market is often harder
condemnation
legal procedures for exercising the right of eminent domain
property taxes
- primary source of local government revenue for city, country, and schools
- based on assessed value and tax rate
- based on assessed value and tax rate
assessed value
generally market value
- assessory estimates value of property annually
- assessory estimates value of property annually
Mill rate
based on the amount of money needed to run the entity (city budget)
TIF (tax incremental financing)
- mechanism for funding development and redevelopment projects
- attempt to stimulate growth and employment through urban redevelopment projects
- attempt to stimulate growth and employment through urban redevelopment projects
Mechanics of TIF
- city does various improvements. Expends money to improve area
three basic powers of regulation
- police powers
- eminent domain
- taxation
- eminent domain
- taxation
police powers
zoning restrictions and building codes help preserve RE value
Property tax exemptions
- religious organizations, nonprofit organizations, educational institutions, state property, homestead
RE market failures
externalities, incomplete information, locational monopolies
Ways to minimize market risk
- critical: understand that some locations are better than others
- avoid projects with high market risk
- avoid projects with prospective major change
- avoid projects with high market risk
- avoid projects with prospective major change
Urban growth
causes real estate market growth
urban decline
causes real estate market decline
urban change
causes real estate market change
urban land use patterns
dictate real estate location patterns
Location, location, location
this is the most important thing about real estate
what is location
proximity, access to what is important
linkages
one land uses locational relationship to other land uses
the important linkages vary with use
- single family homes: proximity to schools, jobs, etc,
- retail: proximity to customers
- student housing - proximity to campus
- retail: proximity to customers
- student housing - proximity to campus
Why are there cities
- because time is valuable
- takes time to travel to work, school, stores, recreation
- human settlement clustered together so people can gather more quickly and efficiently
- clustering provides better access to goods and services
- clustering creates competition for access which create the patterns or urban land uses
- takes time to travel to work, school, stores, recreation
- human settlement clustered together so people can gather more quickly and efficiently
- clustering provides better access to goods and services
- clustering creates competition for access which create the patterns or urban land uses
where cities formed
- from rive to ocean
- intersection of rivers
- from water to rail
- mining
- oil
- intersection of rivers
- from water to rail
- mining
- oil
Economic bases
every great city had some function that it served for the economic world at large
Economic base multiplier
the idea as goes the base, so goes the city
- very important to RE investment
- very important to RE investment
multiplier effect
base (export) income is re-spent, producing additional income
multiplier effect is greater as city is:
- larger
- more diversified
- more isolated
- the base activity uses more local goods and services
- more diversified
- more isolated
- the base activity uses more local goods and services
industry economies of scale
efficiency of production due to scale of local industry
agglomeration economies
emergence of specialized resources in response to demand from multiple industries
implications of industry and agglomeration economies
- cities with industry economies may be more resistant to downturns due to cost advantages
- cities with agglomeration economies may have long term advantages
- cities with agglomeration economies may be safer places for RE investment
- these impact the future viability of the city
- cities with agglomeration economies may have long term advantages
- cities with agglomeration economies may be safer places for RE investment
- these impact the future viability of the city
access/proximity is valuable
- people are willing to pay for access
- time is money and people generally want to limit the time going from one place to the other
- focal points traditionally were central city
- time is money and people generally want to limit the time going from one place to the other
- focal points traditionally were central city
locational patterns
tends toward uniform disperation
comparison goods and clustering
buyers want to compate many goods (cars)
industry economies of scale and clustering
suburban office parks, research universities, tourist attractions
some implications for RE market analysis
- economic base of urban market important
- location within the urban system is important
- urban growth is not uniform
- change often lags the cause by many years
- location within the urban system is important
- urban growth is not uniform
- change often lags the cause by many years
About this deck
By: Ernest Lee
Textbook: Real Estate Principles: A Value Approach
Created: 2009-10-12
Size: 88 flashcards
Views: 132
Textbook:
Real Estate Principles: A Value ApproachCreated: 2009-10-12
Size: 88 flashcards
Views: 132
About StudyBlue
STUDYBLUE makes things that make you better at school.
Things like online flashcards with photos and audio.
Things like personalized quizzes and friendly reminders about when (and what) to study next.
Think of it as a digital backpack™: access to all of your study materials online and on your phone.
STUDYBLUE exists to make studying efficient and effective for every student, for free. Join us.
“I have used this website for three exams, and I see a huge difference in my test results.”
Naj
Naj