Outline - 1. Market Context for Real Estate Transactions :...

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1. Market Context for Real Estate Transactions: this course is about employing a variety of tools to accomplish a specific goal, not about reciting definitions and concepts. a. Three Key Areas of concern in a transactional approach: i. Perspective: thinking about transaction from the POV of various parties. ii. Purpose: developing understanding of the subject matter and the objective. iii. Planning: put together a strategy to reach the client’s purpose. b. Value and Market Choice : RET is the process of capturing or creating value. i. Capturing Value: People enter into RET in the hopes to capture value in the form of profits, equity appreciation, or cash flow. But not always economic in nature. ii. Market Choice: variety of ways for people to invest money, they exist because of competition in marketplace, OBV. c. Accounting Profit and Economic Profit : desirable market choice is one that is profitable. i. Accounting Profits: based on cost of covering transaction. Basically, financial return compared to cost of the activity. ii. Economic Profits: measure the amount of accounting profits against comparable transactions involving the same risk. (comparing market options). d. Risk and Return : trade off between risk aversion and higher returns obv. e. Value and Utility : Utility = how much a person wants that shit, usually measured by willingness to pay through money as a proxy. Usual problems with bargaining power and lack of wealth, etc (may be willing to pay more but you just don’t have that dough). 1. Always consider access to credit before you decide someone’s utility. ii. Marginal U: OBV. iii. Comparative Advantage: people who are more efficient at shit (from education, skills, etc.) can obv make these things work better than morons like yourself. f. Categories of Costs : i. transaction costs : cost associated with undertaking the exchange. 1. Collecting info, negotiating, cooperating, and regulatory compliance. 2. Goal: reduce T costs to facilitate market exchanges. ii. Out-of-Pocket costs : include all the actual costs incurred in getting ownership of the property, just not opportunity costs. 1. Opportunity Costs: depends on person, what other options they give up obv. iii. Sunk Costs : costs that cannot be recovered if a party abandons the transaction. (surveys, title examinations, etc.) 1. distort decision making: high sunk costs make people want to finish transaction when the normally wouldn’t want to. g. Transactional Misbehavior : occurs when one party tries to change dynamics of the deal after the deal has been struck. i. After the deal when risks change or expected rates of return change, parties have an incentive to misbehave. ii. Goal of Transactional Lawyering : to recognize the potential for transactional misbehavior and structure the transaction to reduce the risk of it. h.
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This note was uploaded on 04/08/2008 for the course LAW 2LAW-287-0 taught by Professor Lovett during the Fall '07 term at Tulane.

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Outline - 1. Market Context for Real Estate Transactions :...

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