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Unformatted text preview: CHAPTER 1 THE NATURE OF REAL ESTATE AND REAL ESTATE MARKETS Test Problems 1. A market where tenants negotiate rent and other terms with property owners or their managers is referred to as a: b. User market 2. The market in which required rates of return on available investment opportunities are determined is referred to as the: d. Capital market 3. The actions of local, state, and federal governments affect real estate values d. All of the above 4. Approximately what portion of U.S. households own their own home? b. Approximately two-thirds 5. Of the following asset categories, which class has the greatest aggregate market value? d. Real estate 6. Storm water drainage systems are best described as: b. Improvements to the land 7. What is the single largest asset category, in terms of value, in the portfolio of the typical U.S. household? a. Real estate 8. Real estate markets differ from other asset classes by having all of the following characteristics except: d. Homogeneous product 9. Which of the following is not important to the location of commercial properties? c. Access to schools Study Questions 1. The term real estate can be used in three fundamental ways. List these three alternative uses or definitions. Solution : Real estate is most commonly defined as land and any improvements made to or on the land, including fixed structures and infrastructure components. The term is also used to describe the bundle of rights associated with the ownership and use of the physical characteristics of space and location. Finally, real estate may be described as the 1-1 business activities related to the development, construction, acquisition, operation, and disposition of real property assets. 2. The U.S. represents about 6 percent of the earths land service, or approximately 2.3 billion acres. Who actually owns this land? What is the distribution of this land among the various uses (e.g., developed land, federal, land, forest land). Solution : Developed land, consisting of residential, industrial, commercial, and institutional land, represents approximately 6 percent of the total land in the U.S. Federal lands and water areas occupy about 23 percent of the land; crop land and CRP land represent about 21 percent; and pasture land comprises about 6 percent of the land. Finally, the remaining land is divided between range land and forest land, with each representing 21 percent of all U.S land. 3. Describe the value of U.S. real estate by comparing it to the values of other asset classes (e.g., stocks, bonds). Solution : As of September 2005, real estate (including owner-occupied housing, but excluding real estate held by non-real estate corporations) was the single largest asset class in the U.S., valued at approximately $23.4 trillion. Publicly traded corporate equities equated to about $17.2 trillion of the U.S. market. The value of mortgage debt is approximately $11.1 trillion. This is larger than the existing stock of both corporate and foreign bonds and the outstanding value of U.S. Treasury Securities. foreign bonds and the outstanding value of U....
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