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test 1 notes - Real Estate Basic Definitions Real estate =...

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Real Estate Basic Definitions Real estate = property o Property = anything that can be owned or possessed Tangible asset – physical things (land/buildings) Intangible asset – nonphysical Contractual rights (mortgage/lease agreements) Financial claims (stocks/bonds) Patents/trademarks 3 fundamental uses of real estate: o 1) identify tangible assets of land and buildings Improvements on the land – fixed structures Improvements to the land – components necessary to make the land suitable for building (infrastructure, streets, drain systems, utilities) Raw land – larger area that doesn’t include any improvements Real property – same as real estate Personal property – things that are moveable, not permanently affixed to land o 2) denotes the “bundle of rights” associated with ownership Services or benefits that the real estate provides (shelter, security, privacy) o 3) referring to industry of business activities related to acquisitions/operation of physical assets Real Estate and the Economy Acre = 43,560 square feet o th acres o 71% of U.S. land is for rural use o Most notable change more developed land (108 million acres) Total Market Value of Real Estate = $25.6 trillion o Largest asset class in the U.S. – 27% o $8.5 trillion in housing equity, 45% of the value of real estate Real Estate Markets and Participants Real estate values derived from 3 sectors: o User/space markets (“real world”) Competition among users for physicals locations and space 2/3 of households own their home o Capital/ asset markets (financial world) Allocate finance resources to those requiring funds Expectations of receiving a financial return on investment Equity interest – owners of the real estate – receive rent and price appreciation Debt participant – “lenders”, hold claims to the interest on borrowed funds o Government Income tax policy, housing subsidy programs, federal insurance, fair housing laws
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Characteristics of Real Estate Markets Uniqueness (Heterogeneous) = each property has unique features – specific performance Immobile products = fixed location, not financially feasible to move a building from one location to another Durability (long life) Localized markets = potential users lie within a short distance of each other Segmented markets = highly segmented by building type and price o Investment grade properties – larger, more valuable commercial properties (over 10M) Privately Negotiated Transactions w/ high costs = directly held real estate transactions has length negotiation progress, non-observable lease terms, high search costs, agency fees Nature of Property Rights = claims or demands that government is obligated to enforce o Non-revocable o Enduring – don’t fade away with time o Principal property rights: possession (exclusive), use (enjoyment), disposition
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test 1 notes - Real Estate Basic Definitions Real estate =...

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