Term
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Definition
| local market partially affected by state, national, and world events |
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Term
| the real estate market is essentially local in nature |
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Definition
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Term
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Definition
| 8 characteristics of real estate categories |
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Term
relative scarcity
improvements
permanence of investment
area preference (situs) |
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Definition
| 4 economic characteristics of real estate |
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Term
| the economic (4) characteristics of real estate |
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Definition
| differentiates land from other commodities |
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Term
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Definition
| total supply of land is fixed |
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Term
| area preferences (economic characteristic of real estate) |
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Definition
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Term
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Definition
| people's choice and preference for given area; people's unique personal preferences result in different values for similar parcels |
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Term
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Definition
| most important economic characteristic of land |
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Term
immobility
indestructibility
nonhmogeneity/heterogeneity
geographic characteristics |
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Definition
| 4 physical characteristics of real estate (land itself) |
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Term
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Definition
| geographic location of land doesn't change so real estate markets tend to be affected by local matters |
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Term
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Definition
| permanence of land and indestructibility and long term nature of improvements tend to stabilize real estate investments but illiquid over short term |
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Term
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Definition
no 2 parcels are exactly the same
every parcel in unique location |
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Term
no 2 parcels are exactly the same
every parcel in unique location |
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Definition
| characteristics of heterogeneity as a physical characteristics of real estate |
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Term
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Definition
| all parcels differ geographically even in only slightly |
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Term
topography
prevailing winds
transportation
natural resources |
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Definition
| geographic characteristics of real estate |
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Term
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Definition
| contour and elevation (geographic characteristic) |
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Term
| transportation (infrastructure) |
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Definition
| of the four geographic characteristics, which is more man made than geographic? |
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Term
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Definition
| the infrastructure part of geographic characteristics |
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Term
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Definition
| what is most important about the geographic characteristic of natural resources? |
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Term
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Definition
| present worth of future benefits arising from land ownership |
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Term
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Definition
| the present worth of future benefits arising from land ownership of a duplex (value of a duplex) |
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Term
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Definition
| the present worth of future benefits arising from land ownership of a house(value of a house) |
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Term
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Definition
| amount ultimately paid for land |
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Term
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Definition
| capital outlay for land, labor, materials, and profit to produce property |
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Term
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Definition
| place where land is bought and sold |
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Term
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Definition
| place where supply and demand establishes market value |
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Term
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Definition
| prices based upon selfish desire of buyers and sellers and interactions of supply and demand |
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Term
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Definition
| supply increases, demand decreases or nothing, then prices? |
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Term
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Definition
| supply decreases, demand increases or nothing, then prices? |
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Term
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Definition
| amount of goods offered for sale within the market at given price at given time |
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Term
| available supply of land must be adaptable to desired purpose at price the market will bear |
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Definition
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Term
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Definition
| amount of goods consumers are willing and able to buy at a given price during a given time period |
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Term
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Definition
| value of benefits derived from use of land for a specific purpose |
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Term
labor force
construction costs
government controls
financial policies |
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Definition
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Term
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Definition
| shortage of labor force hurts supply |
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Term
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Definition
| if supply increases and demand does NOT decrease, price will |
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Term
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Definition
| if costs increase, and demand stays the same or increase, price: |
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Term
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Definition
| if costs increase and demand does NOT decrease, what happens to supply? |
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Term
| government controls as a factor affecting supply of real estate |
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Definition
| restrictive land use controls, property taxes, tax abatements for development, environmental laws |
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Term
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Definition
| lowers interest rates to encourage residential and commercial construction and purchases |
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Term
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Definition
| if cost and prices decrease, what happens to supply? to demand? |
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Term
population
demographics
employment opportunities
wage levels |
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Definition
| factors affecting demand of real estate |
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Term
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Definition
| characteristics of population that affect growth |
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Term
| higher demand for real esate/housing |
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Definition
| greater job security leads to ? |
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Term
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Definition
| if wage levels increase, demand for more expensive housing increase |
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Term
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Definition
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Term
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Definition
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Term
expansion
recession
depression
revival |
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Definition
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Term
increase government spending/cut taxes
decrease government spending/raise taxes
control money supply
control lending institutions (reserve requirements) |
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Definition
| government anti cyclical tactics |
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Term
| signficicant but 2 year lag time |
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Definition
| what kind of impact do monetary and fiscal policies have on real estate development? |
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Term
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Definition
| demand and supply factors that affect market for product type in specific geographic market area |
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Term
|
Definition
| supply side of market analysis |
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Term
| major financial, site, structural, and locational characteristics of existing competitive properties and under constructions |
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Definition
| survey of competition in the supply side of market analysis identifies |
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Term
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Definition
| demand side of market analysis |
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Term
identification of consumers and their ability to use (residential housing/office space)
whether enough consumers of product or service provided on property to generate income stream (quantity, quality, duration) |
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Definition
| components of survey of consumers |
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Term
| quantity in survey of consumers |
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Definition
| magnitude of potential income stream |
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Term
| quality in survey of consumers |
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Definition
| nature of flow (tenants/operating expenses) |
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Term
| duration in survey of consumers |
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Definition
| economic life of investment; the length of time of expected income generation |
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Term
what is price market will pay for rent?
what is optimal size and type of structure to use on property?
when should structure be built, rented or remodeled?
what level of amenities/services?
where should building be located? |
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Definition
| 5 questions market analysis should answer |
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Term
what is anticipated rate of return that this investment will generate?
how does return generated compare to investor's required rate of return? |
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Definition
| 2 Questions investment analysis should answer |
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Term
varied levels of income and expenses
varied economic conditions
various income tax considerations |
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Definition
| things that could affect anticipated rate of return in investment analysis |
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Term
| financial feasibility study |
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Definition
| whether proposed or existing project is feasible; compares investor's objectives with potential risk |
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Term
| financial feasibility study |
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Definition
| combination of market analysis and various investment analysis; compares investor's financial requirements to current and projected market conditions |
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Term
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Definition
| attempt to locate all possible sites that will satisfy needs of project |
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Term
| do marketability analysis of each site |
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Definition
| next step after location study in which all possible sites that will satisfy project needs are located |
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Term
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Definition
| determination of structural design and building lot layout which best meets client's financial objectives |
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Term
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Definition
| construction/remodeling costs for structure to satisfy user's needs |
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Term
physical and functional characteristics of structure
amenities
accessibility features (proximity to different places)
financial characteristics (sales/rent; occupancy/vacancy levels)
end |
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Definition
| attributes to look for in a competition survey/survey of competition |
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Term
| table comparing market standard and competitive differential for subject property |
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Definition
| end result of competitive survey |
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Term
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Definition
| spatial relationship between 2 different land users (subject property and others) |
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Term
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Definition
| close proximity with other retairlers that sell similar products |
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Term
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Definition
| looking from user's perspective to determine space/property consumers, need for space property, ability to pay for space property |
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Term
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Definition
| estimated space consumers in market will absorb |
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Term
| residential demand analysis |
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Definition
| number of employed households (not population) now and in the future plus household income level |
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Term
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Definition
| number of consumers in various stages of population |
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Term
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Definition
| consumer life stages (used in retail demand analysis) |
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Term
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Definition
| consumer life style (used in retail demand analysis) |
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Term
| # of households and income per capita |
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Definition
| to perform demand analysis for residential real estate, must know what: |
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Term
current market rent comes from analysis of existent competition
current favancy levels based upon market
future levels of rent
future occupancy/vacancy rates
investeors use this date to determine whether investment meets finanical obejctives |
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Definition
| relationship of market analysis to investment analysis |
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Term
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Definition
| act or process of estimating value of real estate interests impartially and objectively |
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Term
lenders (loan collateral value)
sellers (asking price)
buyers (offering price)
estate tax valuations
investment counseling |
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Definition
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Term
| uniform standards of professional appraisal practice (USPAP) |
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Definition
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Term
|
Definition
| all federally regulated transactions over what amount require appraisal prepared by certified appraiser |
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Term
state problem
list data and sources
gather, record, and verify data
determine highest and best use
value using 3 approaches (sales comparison, cost, income)
reconcile differences in approaches
report final value estimate/range |
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Definition
| 7 steps in appraisal process |
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Term
| state problem in the appraisal process |
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Definition
| the step that identifies real estate and bundle of sticks, use, date of valuation |
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Term
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Definition
| social, economic, environmental trends in the appraisal process |
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Term
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Definition
| phsyical location, cost of property and comparables in the appraisal process |
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Term
|
Definition
| define highest and best use |
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Term
sales comparison
cost
income (for income producing prop) |
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Definition
| 3 valuation appraisal approaches |
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Term
demand
utility
scarcity
transferability
(DUST) |
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Definition
| 4 characteristics for property value in real estate market |
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Term
|
Definition
| characteristic for property value where buyers wanting and able to buy |
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Term
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Definition
| ability to satisfy human want, need, desire |
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Term
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Definition
| finite supply now or in the future |
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Term
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Definition
| ability to sell (if can't sell, no sales value) |
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Term
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Definition
| where demand and supply meet |
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Term
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Definition
| most probable price property should bring in competitive market at a fair sale with seller and buyer acting knowledgeably and under no undue influence |
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Term
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Definition
| most common type of value appraised |
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Term
b/s normally motivated
b/s acting in best interests
reasonable time allowed for exposure
payment in us $ or competitive financing
no special financing/sales concessions |
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Definition
| characteristics of market value |
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Term
| b/s acting in best interests |
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Definition
| when buyer and seller are both well informed and motivated by profit, they are said to be |
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Term
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Definition
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Term
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Definition
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Term
| theoretically market price and market value should be the same |
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Definition
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Term
| market price will not equal market value |
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Definition
| what happens if 1 or more of market value characteristics isn't true? |
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Term
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Definition
| land + hard costs + soft costs + entrepreneurial reward |
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Term
| improvements are new and represent highest and best use |
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Definition
| cost and market value may be equal when: |
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Term
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Definition
| most probable use that is legally permissible, physically possible, financially feasible and maximally productive and results in highest value |
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Term
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Definition
| cost of purchasing an equally desirable and valuable property, sets maximum |
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Term
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Definition
| maximum value of land realized if land use conforms to existing neighborhood standards |
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Term
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Definition
| influences outside property have effect |
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Term
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Definition
| value can increase or decrease when expecting future benefit or detriment affecting property |
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Term
highest and best use
substitution
supply and demand
conformity
externatlities
anticipation
icnrease/diminishing returns
plottage
competition'
change |
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Definition
| basic principles affecting valuation |
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Term
|
Definition
| increased utility and value resulting from combining or assembling adjacent properties |
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Term
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Definition
| excess profits attract competition |
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Term
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Definition
| must anticipate changing market |
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Term
| sales comparison approach (market data approach) |
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Definition
| estimate of value by comparing this property to sales of comparable properties |
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Term
date of sale (market conditions)
location
physical characteristics
terms and conditions of sale |
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Definition
| adjustments made in the sales comparison/market data approach to estimate value |
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Term
| in appraising single family residences, duplexes (good approach if lots of comparables in competitive market) |
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Definition
| when is the sales comparison/market data approach usually used? |
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Term
cost of vacant land
+ cost of constructing improvements
- depreciation from ALL sources |
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Definition
| cost approach formula for valuation |
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Term
| for special purpose buildings (churches schools) |
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Definition
| when is the cost approach usually used? |
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Term
value of land as vacant and available for Highest and Best use
estimate current construction costs
estimate accrued deprecation from all sources
deducted estimated depreciation from reproduction costs of improvements
add land value to depreciated value of site imporvements |
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Definition
| 5 steps to cost approach of valuation |
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Term
| hard costs + soft costs + entrepreneurial reward |
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Definition
| current constructions costs in the cost approach of valuation |
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Term
| land + total construction costs - depreciation |
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Definition
| (cost approach formula) value = |
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Term
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Definition
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Term
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Definition
| component of current construction costs in cost valuation approach that involves architects, surveys, lawyers, interior design, etc.. |
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Term
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Definition
| $ amount to construct exact duplicate (exact replica of subject property at CURRENT prices |
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Term
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Definition
| $ amount to construct not exact duplicate but similar improvement that serves same function and purpose |
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Term
| multiply current cost by number of square feet in building |
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Definition
| square footage method (used to determine reproduction vs replacement) |
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Term
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Definition
| any condition that lessens value of improvements to real property |
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Term
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Definition
| difference between reproduction cost of improvements and market value |
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Term
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Definition
| difference between new and used structure |
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Term
physical deterioration
functional obsolescence
external/economic obsolescence |
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Definition
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Term
|
Definition
| ordinary wear and tear from use, age, weather |
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Term
|
Definition
| two types of physical deterioration |
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Term
| curable physical deterioration |
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Definition
| can be fixed; cost to do so offset by equal or greater increase in value |
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Term
| curable physical deterioration |
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Definition
| worn out carpet or replacing AC compressor would be an example of what kind of deprecation |
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Term
| incurable phsyical deterioation |
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Definition
| can't be practically or economically corrected |
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Term
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Definition
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Term
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Definition
| no central air conditioning would be what kind of depreciation |
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Term
| curable functional obsolescence |
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Definition
| cost of replacing unacceptable aspect offset by equal or greater increase in value |
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Term
| incurable functional obsolescence |
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Definition
| a building with small or irregular sized room would be an example of what kind of depreciation |
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Term
| external or economic obsolescence |
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Definition
| diminished utility of structure due to negative influences outside property |
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Term
|
Definition
| external/economic obsolescence is traditionally not curable b/c source of problem isn't your property |
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Term
| by value of comparable properties without condition, with adjustment |
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Definition
| how is external or economic obsolescence measured? |
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Term
market value of land
cost of new improvements
dollar value of accrued depreciation |
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Definition
| for cost approach to estimate value, what inputs are needed? |
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Term
| income approach to valuation |
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Definition
| estimates value based upon relationship between income property generates |
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Term
| to value income producing properties like apartment buildings, office buildings, shopping centers |
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Definition
| when is the income approach used/ |
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Term
| gross income/rent multiplier technique |
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Definition
| estimating value by converting monthly (annual) gross rental income into estimate of market value |
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Term
obtain sales prices of comparable properties
determine monthly/annual rental income |
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Definition
| steps in determining gross rent/income multiplier (GRM/GIM) technique |
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Term
| sales price / monthly rent = |
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Definition
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Term
| average GRM (not weighted) * monthly rent = sales price |
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Definition
| how to detrmine sales price using grm |
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Term
assumes high degrees of uniformity in operating expenses and financial characteristics
ignores remaining economic life of properties
simplistic |
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Definition
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Term
| direct/net income capitalization |
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Definition
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Term
| preliminary income analysis |
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Definition
| identifying sources of income and levels of income |
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Term
| potential gross income (PGI) |
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Definition
| total rent that could be produced (estimated maximum income from all sources) |
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Term
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Definition
| actual rent collected considering vacancy rates and rent collection losses |
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Term
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Definition
| rent provided in current leases |
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Term
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Definition
| rent presently paid for comparable spaces |
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Term
economic life of structure
timing and pattern of rental payments
quality of PGI |
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Definition
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Term
| economic life of structure |
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Definition
| number of years during which subject property generates financial returns to tits owner which are competitive with returns generated by similar types of income producing properties |
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Term
mgmt fees if % of rent collected
utilities (partially fixed)
supplies and materials
property maintenance |
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Definition
| variable operating expenses (change with occupancy levels) |
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Term
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Definition
| don't vary with occupancy |
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Term
property taxes
property insurance |
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Definition
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Term
| carpeting, applicances, roof |
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Definition
| reserves for replacement (short lived items periodically replaced) |
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Term
income taxes
debt services
depreciation
capital improvement expenditures |
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Definition
| items excluded from appraiser's operating expense statement |
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Term
| because they don't affect CURRENT operating income and expenses |
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Definition
| why are certain items excluded from appraiser's operating expense statement? |
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Term
| total operating expense / effective gross income |
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Definition
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Term
|
Definition
| is a higher or lower operating expense ratio better? |
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Term
| capitalization rate/yield rate |
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Definition
| rate that must accurately provide recapture original investment, adequate rate of return, and repayment of borrowed capital |
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Term
recapture original investment over economic life
basic rate of interset (cost of borrowed funds)
rate of return on invesment |
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Definition
| factors required for a capitalization rate |
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Term
estimate annual PGI
deduct vacancies for EGI
subtract operating expenses to get NOI
estimate cap rate
divide NOI by Cap Rate to get value |
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Definition
| 6 steps in estimating market value using direct capitalization |
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Term
| yield capitalization/discounted cash flow model |
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Definition
| converts future period estimates of NOI figures to PV by applying an approximate yield rate (multiyear analysis) |
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Term
projected NOI figures
cap rate estimated at time of sale
discount rate/rate of return |
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Definition
| requirements for yield capitalization |
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Term
future anticipated EGI
future anticipated total operating costs |
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Definition
| factors in determining projected NOI |
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Term
|
Definition
| application of 3 appraisal approaches |
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Term
sales comparison approach
cost approach
income apporach |
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Definition
|
|
Term
arbitrage
income tax advantages
portfolio diversification
appreciation
leverage |
|
Definition
| real estate investment advantages |
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Term
|
Definition
| rate of return may be higher than cost of loan, so borrow $ at lower rate than earn on it |
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Term
|
Definition
| small cash investment yields larger total $ return |
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|
Term
illiquid
active management
moderately high risk |
|
Definition
| real estate investment disadvantages |
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Term
|
Definition
| increase in property value over time so profit in future sale |
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Term
|
Definition
| increase in amount of $ in circulation so increase in real property value as prices rise |
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Term
|
Definition
| subjective value based on personal preference for given geographic area with desired features and amentities |
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Term
| agricultural and raw undeveloped land |
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Definition
| nonincome producing property |
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Term
revenue
-debt repayment
-operating costs |
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Definition
| cash flow/spendable income |
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Term
rent
operating expenses
PITI
cash flow mgmmt
competietion |
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Definition
| factors affecting cash flow |
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Term
supply/demand
location
physical appearance
amenities |
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Definition
| factors affecting cash flow from rent |
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Term
|
Definition
| use of borrowed money to purchase land |
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Term
| loan amount divided by FMV = % |
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Definition
| loan to value ratio (LTV) formula |
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Term
|
Definition
| gradual increase in owner's net worth in property (even if no appreciation) bc portion of every payment reduces principal of loan |
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Term
|
Definition
| leveraging equity in one property to buy another and another using appreciation and equity build up in 1 property to borrow $ to purchase 2nd with no additional cash down payment |
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Term
|
Definition
|
|
Term
|
Definition
|
|
Term
|
Definition
| uses market rents to calculate market value |
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Term
|
Definition
| emphasizes contract rents to determine market price |
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|
Term
income taxes
depreciation
capital improvement expenditures
mortgage interest |
|
Definition
| appraisal doesn't consider: |
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Term
| investment analysis determines before tax cash flow to obtain property value for specific investor (so includes adjustments that appraisal would leave out) |
|
Definition
|
|
Term
|
Definition
| $ owner keeps after property revenues used to cover major property outlays |
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Term
| total operating expenses divided by EGI |
|
Definition
|
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Term
|
Definition
| debt service cover ratio formula |
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Term
| all expense items + mortgage payments compared to property's income |
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Definition
|
|
Term
equity capitalization rate/equity div
payback period
gross rate of return on equity |
|
Definition
|
|
Term
| equity cap rate/equity dividend ratio |
|
Definition
| cash on cash rate of return on investment |
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Term
| BTCF/Initial cash investment |
|
Definition
|
|
Term
|
Definition
| estimated number of years property must be held before tax cash flow equals initial cash investment |
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|
Term
| gross rate of return on equity |
|
Definition
| BTCF plus equity increase through mortgage principal reductions plus yearly property appreciation divided by initial cash investment |
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Term
| before tax equity reversion |
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Definition
| effect of price appreciation, equity buildup, and sales expenses on initial investment; how much $ get back after holding period and then cash sale |
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