Real Estate Midterm 1

Real Estate And Urban Land Economics 306 with Mccabe at University of Wisconsin - Madison

About this deck

By: Kyle Loger
Textbook:

Real Estate Principles: A Value Approach
Created: 2011-10-14
Size: 107 flashcards
Views: 292

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Meaning of Real Estate

-Physical asset

-Rights from owning property

-A profession and an industry

Real Estate refers to

The land and all the permanent attachments to the land

Physical Rights of RE

Air rights, Surface Rights, Mineral, Oil and Gas rights

Ownership 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

Fee Simple Estate

Implies absolute ownership (all the sticks in the bundle). Limited by taxation, eminent domain, police powers, escheat.

Leased fee and leasehold estates

When a property is leased, the right to use/occupy it is transferred to the tenant.

-->Landlord has a leased fee interest

-->Tenant has a leasehold interest

Real Estate Industry #'s

-Generates 28% of GDP

-Generates nearly 70% of local gov't rev through property taxes

-Creates jobs for nearly 9 million Americans

3 Real Estate Sectors

-User (Space) markets

-Capital markets

-Governmental sector

User Markets

-Creates suply/demand

-Suppliers: Developers, builders, surveyors, etc.

-Users: Owners/renters

Capital Markets

-Provides equity and debt

-Real estate as an alternative investment or income

-Investors, corporations involved, institutional investors

Government Sector

Enforce zoning, building codes, property taxes, infrastructure, etc

Segmentation of User/Space markets

Causes rental prices for physically "similar" space to be different because of location, approximation to commodities, property type.

RE Markets are localized because

-Heterogeneous (no perfect substitute)

-Immobile

-Segmented

RE market characteristics

-Markets hardly ever in balance

-Incomplete market information

-High transaction costs

-RE is illiquid- doesnt sell quickly

-Decisions are around for a long time

Rights that give RE value

-Right to prevent trespass

-Right to use and be free of others interference AKA freedom of nuisance

-Right to dispose of our property, or alienate it

Personal Property VS Real Estate

Personal property can be picked up and move around without rules and regulations set by the government. Real estate is the land, and permanent fixtures attached to it (like a house)

Fee Simple Conditional

Ownership is subject to a condition. Like someone may have an interest in an apartment building as long as they only permit certain people to occupy it. If that condition is broken then the previous owner can take the apartment building back.

Ordinary life estate and remainder

When someone may sell or donate their property (for compensation) to another party, however, they get to keep all the rights up until they die. Then after they die it becomes a fee simple absolute estate after the persons death.

Easement appurtenant

A right of use (or a restriction) that burdens a parcel of land (the servient) for the benefit of another parcel of land (the dominant parcel). For example, a driveway crossing one parcel of land from another.

Easement in gross

When there is more than one servient parcel and not necessarily a dominant parcel. For example like a telephone or utility wire being run across multiple properties

License

A grant of permission to use RE. Like a ticket that says it is okay to park on a parking ramp is a license.

Restrictive covenants

These covenants arel ike another set of rights drawn from the bundle that prohibit conduct on a property. For example, setback lines, height restrictions, limitations on pets, etc.

How restrictive covenants are created

-Restriction in a deed conveying a single parcel of land to a new owner

-Restrictions imposed on an entire subdivision before any lots are sold (by CCR's [conditions, covenants and restrictions])

Leins

An interest in real property that serves as security for an obligation.

Lein priorities

1) Property tax lein is always first priority

2) Mortgage and mechanics leins

3) Judgment leins

Indirect co ownership

When more than one person or a business company owns it all together. It's not owned by just one person but the company as one whole creates this artificial entity that owns it.

Tenancy in Common

"Normal" form of direct co ownerhsip and is as close to the fee simple absolute estate as possible. Each co owner retains full rights of disposition and is free to morgage, or to convey his or her ownership share to a new owner.

Joint tenancy

The interest of a decedent co owner divides equally among the surviving co owners and nothing passes to the heirs of the decedent. Difficult to create and less beneficial.

Tenancy by the entirety

Form of joint tenancy for husband and wife. At the death of a spouse TBTE can reduce probate costs and complications since no disposition of property occurs in the eyes of the law. It is easy to create and less fragile.

Condominium

Form of ownership combing single person ownership with tenancy in common. Owner holds fee simple interest as an individual owner to a certain space, like an apartment.

Reasons for complexity of the conveyance of RE

-Real property is a complex bundle of rights

-Rights to land are enduring: Rights available today depend on transactions long ago

-Land is a continuous surface... Boundaries are not always obvoius or natural

Deeds

-A special written contract for conveying permanent interest in real property.

-Must be in writing to be upheld by a court

Deed Requirements

-Name of grantor and grantee

-Consideration and conveyance

-Contain certain covenants and clauses

-Contain exceptions and/or reservations and physical descriptions

-Acknowledgement and delivery

Habendum clause

Defines/limits interest(s) conveyed

Grantor requirements

-Must be of legal age

-Legally competent

-Must sign the deed

Grantee requirements

-Only needs to be identifiable

Covenants

Legally binding promises

Three Main Covenants

-Seizin: Grantor has good title and right to convey it

-Against encumbrances: No encumbrances except as noted in deed (leins, easements)

-Quiet enjoyment: No one with a better claim to title

Property descriptions must

-Be unambiguous and enduring

-Described in 1 of 3 ways: Metes and bounds, plat lot and block #, gov't rectangular survey

Unacceptable descriptions in deeds

Street address and tax parcel number

Acknowledgment

Confirmation that grantor acted voluntarily

Delivery

Observable, verifiable intent that deed is to be given to grantor

(General) Warranty deed

Includes all the covenants (seizin, no encumbrances, quiet enjoyment). Considered the best deed to have.

Special Warranty deed

Time limit on no encumbrances. The grantor asserts only that he or she has created no undisclosed encumbrances during ownership, but asserts nothing about encumbrances from previous owners.

Deed of bargain and sale

No covenants, implies claim of ownership, used by businesses

Quitclaim deed

No covenants. It is used to clear clouds on the title and make it a marketable title.

Marketable title

One that is free of reasonable doubt

Voluntary conveyance by deed

Ordinary sale and transfer of title

Involuntary conveyance by deed

-Probate (distribution of estate)

-Bankruptcy

-Divorce settlement

-Condemnation

-Foreclosure

Voluntary conveyances without a deed

When there is an implied easement or easement by prior use or necessity. Easement by prior use or necessity is caused when an owner subdivides land and creates a parcel of land to be landlocked.

Involuntary conveyance without deed

Must meet 5 conditions:

1) Hostile to owner's interests

2) Actual: the land must be employed in some natural use

3) Open and notorious: there can be no effort to disguise or hide the use from the owner

4) Continuous

5) Exclusive

Statute of frauds

Contract must be written to be enforceable

Recording statutes

A contract recorded in public records is considered known

Doctrine of constructive notice

Cannot be bound by what you cannot know... OR can be bound by what you COULD know

Title

Collection of evidence indicating a particular person(s) as holder of the "fee"

Evidence of title

Assurance of a good or marketable title

2 forms of evidence of title

1) Title abstract with attorney's opinion

2) Title insurance commitment

Metes and bounds

-A sequence of directed distances

-Most flexible and difficult to interpret

Plat lot and block number

Lot and block number sufficient to describe parcel

Government Rectangular Survey

There is a baseline and principal meridian. Range lines go north and south, tier lines go east to west.

Externalities

Impact of one land use on neighbors (spillover effects)

RE Market failures

-Externalities

-Incomplete information

-Locational monopolies

3 basic powers of regulation

-Police poweres

-Eminent domain

-Taxation

Police powers as a power of regulation by gov't

-Regulate land use and set minimum standards for safe construction like zoning, and building codes.

Eminent domain

Right of government to acquire private land, without the owner's consent, for public use, with due process and just compensation.

Plans/zoning

Specifies allowable land uses. Eliminates some uncertainty.

Types of public plans

-Community plans

-Neighborood plans

-Special area or issue plans

Neighborhood plans are for

Established neighborhoods

Neighborhood development plans are for

New growth areas

Traditional Planning

-Separated uses

-Automobile oriented

-Uniform density

-Cul-de-sac hierarchy in neighborhoods

New urban planning

-Mixed use

-More public transportation oriented

-Pedestrian oriented (sidewalks, houses close to street, rear alleys, grid streets)

Zoning

-Use classifications: Residential, commercial, industrial, etc

-Use districts

-Setback requirements

-"Bulk" or density limits (minimum lot size, height limits, etc)

-Special use districts: Service stations, hospitals, churches

Subdivision Regulations

-Standards for streets, swers and water systems

-Adequate water supply for fire safety

-Adequate drainage and run off retention

-Easements for utilities

3 Planning and zoning commissions

-Zoning board of appeal: Request a varience from the current zoning code

-Plan commission: Review plans (building location, water run off, etc)

-Urban Design Commission (UDC): Review plans for design

Land Use Control: Planned Unit Development (PUD)

-Mixed density

-No setback requirements

-Open community spaces and community facilities

Land use control: performance standards

-Runoff limits

-Noise and emission limits

-Traffic limits

-Tree removal restrictions

Land Use Control: Growth fees

-Temporary moratoriums

Building Codes

-Older than zoning

-Issues of safety: Fire, sanitation, injury

-How the buildings are made to prevent injury or sickness

Condemnation

Legal procedure for exercising the right of eminent domain

Property taxes

-Primary source of local government revenue

-Many taxing authorities: City, county, schools, improvement districts, etc.

-Based on assessed value and tax rate (mill rate)

Property tax exemptions

-Religious organizations

-Nonprofit organizations

-Schools

-State property

Assessed value for property tax

-Generaly market value

-Assessor estimates value of property annually

Mill rate

Tax rate

Tax Incremental Financing (TIF)

-Mechanism for funding development and redevelopment projects

-Attempt to stimulate growth and employment through urban redevelopment projects

-Provides mechanism for the benefitees to share costs such as schools

Ad valorem taxes

They are applied in relation to the value of the property

Most critical idea in market value

Understand that some locations (markets) are better than others

High risk projects

-Hotels/motels

-Restaurants and entertainment facilities

Avoid projects with prospective major change such as

-Lease rollover for major tenants

-Major renovations

What is location?

1) Proximity, access to what is important such as stores, schools, etc

2) Linkages

Linkages

One land uses locational relationship to other land uses

Why are there cities?

-Close to everything

-Human settlement clustered together so people can gather quickly and efficiently

-Clustering provides better access to goods and services which creates competition

Where cities form

-At major intersections of different transportation modes like

-Major natural resource

Transition points in trade routes

-River to ocean (NYC, New Orleans)

-Intersection of rivers (Pittsburgh, St. Louis)

-Water to rail (NYC, Chicago, Minneapolis)

Economic base

Economic activities that the city provides for the world beyond its boundaries. They provide income and jobs. EX: Wisconsin=Miller Brewing Co., Cheese

Secondary Activities

Activities that re-circulate income in a city (local government, local merchants and services)

Multiplier effect

Base (export) income is re-spent, producing additional income. Drives local economic activity and land use through a multiplier process.

Multiplier effect is greater as city is

-Larger

-More diversified

-More isolated

-The base activity uses more local goods and services

Industry economies of scale

Efficiencies of production due to scale of local industry. More resistant to downturns due to the cost advantages

Agglomeration economies

Emergence of specialized resources in response to demand from multiple industries. Have long term advantages: Incubator for new businesses and cost advantage for emergiing industries. Generally "safer" places for RE investment.

CBD

Central City... Central Business District?Traditionally focal points of businesses. Land is most valuable at the center.

Factors that affect a bid-rent curve

-Number of bidders

-Wage rate (time cost) of commuters

-Speed of travel

-Frequency of trips

Technical changes from 1920 that pushed employment outside CBD

-Production revolution: Assembly lines, horizontal rather than vertical processes

-Advances for offices and retailing: A/C, fluorescent lighting, self service retailing

-Data processing and communications: Advances in phones, birth of computers

Clustering pattern

-Comparison goods and clustering: people like to compare and shop

-Industry economies of scale and clustering: research universities, tourist attractions

RE Market Analysis

-Economic base of urban market is important

-Location within the system is important

-Urban growth is not uniform

Demand factors for RE

-Population growth and composition

-Employment characteristics and income level

-User preferences/lifestyles

-Area regulations

-Characteristics of product

Supply factors of RE

-Government regulations

-Interest rates

-Construction costs

-Lease rates and vacancies

-Amount of available land

Tools for market research

-Geographic information systems (GIS)

-Psychographics

-Survey research

About this deck

By: Kyle Loger
Textbook:

Real Estate Principles: A Value Approach
Created: 2011-10-14
Size: 107 flashcards
Views: 292

About StudyBlue

“I have used this website for three exams, and I see a huge difference in my test results.”
Naj