Chapter 15 Section 3

Question 1

efficient market theory

Answer 1

-an efficient market is a perfect market model that allows comparisons of any market to a theoretical standard

Question 2

unorganized and inefficient

Answer 2

-real estate is not a homogenous market
-real estate market cannot be centralized like the New York Stock Exchange
-its unorganized and inefficient when compared to other markets

Question 3

local in nature

Answer 3

-each parcel of real estate is unique in size, shape, or other characteristics
-prices are high compared to most other goods
-supply cannot quickly respond to changes in demand

Question 4

externalities

Answer 4

-the real estate market is influenced by four external factors called externalities
-social
-economic
-governmental
-environmental

Question 5

social externalities

Answer 5

-related to population
-# of people that move in or out of an area, the # of marriages, the # of deaths, divorce rate, etc

Question 6

economic externalities

Answer 6

-employment and wage levels
-the cost of materials and labor
-vacancy rates
-the cost and availability of credit
-the expansion or contraction of industry

Question 7

governmental externalities

Answer 7

-zoning, building, or health codes can limit or support construction of new properties
-legislation that concerns homestead exemptions, rent controls, and restrictions related to condominiums and timeshare arrangements can have enormous effect on markets

Question 8

environmental externalities

Answer 8

-roads, highways, bridges, airports, and rail lines are examples of man-made features which limit or affect development
-weather, terrain, soil conditions, and climate are potential barriers as well

Question 9

physical characteristics of the land

Answer 9

-indestructible
-immobile
-hetergenous

Question 10

indestructible

Answer 10

-the land may change in character but will always occupy a space on the face of the earth
-property insurance insures the improvements to the land only, not the land itself

Question 11

immobile

Answer 11

-the property is fixed as to its location
-a housing shortage in one area cannot be cured by an oversupply in another area

Question 12

heterogenous

Answer 12

-no two properties are exactly alike

Question 13

economic characteristics of the land

Answer 13

-scarcity
-situs value
-assemblage
-plottage value
-improvements relatively permanent
-demand not quickly satisfied
-oversupply not quickly absorbed

Question 14

scarcity

Answer 14

-from an economic point of view, land is scarce
-anything with a finite supply can assume a value based on demand
-in some areas, land is scarce relative to demand and, therefore, extremely expensive

Question 15

situs value

Answer 15

-the immobility of a parcel of real estate combined with its unique features and ability to provide benefits determines its value
-situs value is used to identify the value that results from the location of a parcel of land within a community

Question 16

assemblage

Answer 16

-combining two or more parcels of real estate under the ownership of one party is known as assemblage

Question 17

plottage value

Answer 17

-if the combined parcels have greater value together than they did as separate parcels, the increase in value is known as pottage value

Question 18

improvements relatively permanent

Answer 18

-the real estate market is less flexible than other markets because improvements to land are relatively permanent
-improvements are expected to remain on the land for many years

Question 19

demand not quickly satisfied

Answer 19

-the production of improvements to real estate is time consuming
-if real estate is in demand, the demand cannot quickly be satisfied

Question 20

oversupply not quickly absorbed

Answer 20

-an oversupply of housing in a market area must be absorbed in that market area, and that can take an extended period of time
-the real estate market is slow to respond to changes in supply

Question 21

land use analysis

Answer 21

-legally permissible
-physically possible
-financially feasible
-maximally productive

Question 22

legally permissible

Answer 22

-a parcel is determined to have four legally permissible uses

Question 23

physically possible

Answer 23

-each use is tested to see if its physically possible based on the size, shape, soil, terrain, and so on of the site
-out of the four legally permissible uses, one is not physically possible, therefore, that particular use is eliminated from consideration

Question 24

financially feasible

Answer 24

-the remaining three uses are tested for economic feasibility
-one of the remaining three does not meet this test, therefore it is eliminated

Question 25

maximally productive

Answer 25

-out of the two remaining uses, the one that generated the most return or provides the greatest benefit to the owner is considered to be the best use of real estate

Question 26

institutional characteristics of the real estate market

Answer 26

-government regulation -real estate laws -customs -trade organizations

Question 27

government regulation

Answer 27

-zoning, comprehensive land use plans, rent controls, tax laws, public assistance and housing programs, restrictions and laws which affect financing, laws that restrict or affect development, and the use of land are examples of government regulation

Question 28

real estate laws

Answer 28

-real estate laws are based on the concept of private ownership of legal rights in land -when real property is exchanged in the market, the commodity that is transferred is a bundle of legal rights

Question 29

customs

Answer 29

-customs affect the nature and type of improvements constructed in local, state, and regional areas -consumer attitude changes from time to time so the market must be able to respond to those changes

Question 30

trade organizations

Answer 30

-serve to unify, empower, and promote the interests of its members

Question 31

neighborhood life cycle

Answer 31

-growth -stability -decline -revitalization

Question 32

growth

Answer 32

-the growth period begins when newly cleared land is made available for construction, or existing properties are converted to other uses -neighborhood growth usually coincides with periods of economic expansion -the growth period may last several years or end abruptly due to sudden changes in demand or shifts in market preferences

Question 33

stability

Answer 33

-characterized by neither growth nor decline -this period may begin when it is no longer profitable to build in an area or when other neighborhoods are seen as better values by market participants -during a period of stability, values are relatively stable, supply and demand are in balance, and turnovers are low -properties are well kept because owners have the income to maintain them

Question 34

decline

Answer 34

-when a neighborhood can no longer compete with comparable neighborhoods in the same market, decline is imminent -maintenance declines as residents may not have sufficient income to continue to keep the properties in proper condition -for sale signs appear with greater frequency and small businesses that formerly served the neighborhood residents may close from lack of local support

Question 35

revitalizaiton

Answer 35

-changing land use patterns, preferences, and migration patterns may cause a period of decline to suddenly end -deteriorated buildings may be demolished to make way for new, more modern structures

Question 36

gentrification

Answer 36

-younger, single people and small families who want to live in proximity to urban services may purchase properties in areas that have lost favor in the market and rehabilitate or renovate them -this process begins a period of revitalization which provides both positive and negative effects to the community -