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Real Estate 306 Midterm 1 Questions
and Answers
real estate
✓ ~~~ physical asset
✓ anything that can be owned or possessed; RIGHTS from owning property
✓ if you have right of possession, you own real estate
✓ profession and an industry
real estate as a physical asset
✓ ~~~ is the land and all permanent attachments to the land and anything it is suitable for;
ex. fixed structures or parking garage potential
real estate as a bundle of rights
✓ ~~~ it is the services/benefits real estate provides ex. shelter, privacy etc
✓ also have air rights, surface rights, mineral, oil and gas rights
✓ can pick an choose sticks in the bundle of "ownership rights"
real property vs personal property
✓ ~~~ real property = anything immovable, ex land, home, anything attached to the land,
permanent
personal property = something that can be moved like RV or furniture
what are the three different markets in RE
✓ ~~~ user markets
capital markets
property markets
user market
, ✓ ~~~ competition among users for physical location and space. competition determines
the price of each land parcel
creates supply and demand
user market for physical real estate
✓ ~~~ buyers receive the right to use space
rental rates are determined by supply and demand
demand: individuals, households, and firms who require space for consumption or
production purposes
supply: real estate owners/operators who rent space to tenants
capital markets
✓ ~~~ allocate financial resources among households and firms requiring funds
ex. stocks, bonds, mortgage contracts... anything that will give a financial return
provides equity and debt
property markets
✓ ~~~ determine required property specific investment returns, values, etc
intersection of user and capital markets
other characteristics of real estate markets
✓ ~~~ high transaction costs b/c expensive to enter and exit market (time and $)
real estate is illiquid, fewer buyers
high asset value - debt financing is needed
, long economic life
traditions - symbol of power, stability (people want to won homes, white house)
capitalization rate
✓ ~~~ ratio of property's annual net income from rental operations to its value
net income/price of property
role of government on real estate
✓ ~~~ local government = most influential, property taxes, fees, construction restrictions
state government = least influential, sets requirements for local governments
federal government = housing subsidies, income tax policies, environmental policies
explain why real estate is heterogeneous
✓ ~~~ each property has unique features... even homes that are built exactly the same are
different because they're in different locations
what is a localized market
✓ ~~~ homes are near other homes, apartments are near other apartments. this increases
competition in the market
what is a segmented market
✓ ~~~ people looking for homes are not going to look for them in a condo market. they will
stay in the localized home market. this is why there are different segments in real estate
improvements on the land vs improvements to the land
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