Chapters 10, 11, and 16

Question 1

What is Real Estate Market?

Answer 1

Interaction of individuals who exchange real property rights for other assets such as money

Question 2

What are some characteristics of an efficient market?

Answer 2

• Large number of buyers
• Prices are uniform and stable
• Self Regulating
• Knowledgeable participants

Question 3

What are some Real Estate Market Characteristics?

Answer 3

• Illiquid
• Large sums of money
• Cannot be moved
• Difficult to predict (Land and homes)
• Financing (not equally attainable)

Question 4

4 phases RE MARKET Cycle:

Answer 4

1- Recovery - Declining Vacancy, No new construction
2-Expansion - Declining Vacancy, New Construction
3-Contraction - Increasing Vacancy, New construction
4-Recession - Increasing Vacancy, More competition

Question 5

4 stages of the LIFE cycle:

Answer 5

Think Neighborhood life cycle or area.

1- Growth
2- Stability
3- Decline
4- Revitalization

Question 6

What is a Money Market?

Answer 6

Interaction of buyers and sellers who trade SHORT TERM money instruments

Question 7

What is a Captial Market?

Answer 7

Interaction of buyers and sellers trading LONG or MEDIUM TERM money instruments

Question 8

Capital market examples:

Answer 8

Bonds
Stocks
Mortgages
Deeds of trust

Question 9

Long-term instruments usually offer:

Answer 9

Higher yield curves

Question 10

What is an inverted yield curve?

Answer 10

When short-term (savings account) instruments have higher yields than long-term instruments (30 yr mortgage). - usually precedes a recession

Question 11

Characteristics of Equity investor/Ownership:

Answer 11

• Earnings subordinate to operating expenses and debt service (payment then profit)
• One year of income = Equity Dividend
• Total Return over Time=Equity yield

Question 12

Characteristics of Debt Investor/Lender:

Answer 12

• Search for income at repayment of principal

- Relatively Passive

Question 13

What are some characteristics and examples of the Securitization of RE Investment Markets?

Answer 13

• Ability for partial ownership and Tranches
• CMBS
• More Liquidity and movement within the market

Question 14

Define CMBS

Answer 14

Commercial Mortgage-Backed Security

Question 15

Types of Risk:

Answer 15

Market
Financial
Capital Market
Inflation (Purchasing Power)
Liquidity (Marketability)
Environmental
Legislative
Management

Question 16

Name the Four tests of Highest and best use:

Answer 16

1- Physically Possible
2-Legally permissible
3-Financially Feasible
4-Maximally Productive

Question 17

2 types of analyses of highest and best use:

Answer 17

As Vacant

As Improved

Question 18

As Vacant Principles:

Answer 18

Assumes land is vacant and available
Indicates change in near future
Purpose: Identify property use and comparable land sales to use

Question 19

As Improved Principles:

Answer 19

Compares existing use with ideal use

Should improvements be: Demolished, expanded, converted, renovated