AG HBU Part 1 Real Estate Markets and Analysis Flashcards
- The four factors that create value in real property are
A. location, quality, condition, and utility.
B. rental rates, occupancy rates, operating expenses, and capitalization rates.
C. supply, demand, demographics, and income.
D. utility, desire, effective buying power, and scarcity.
*D. utility, desire, effective buying power, and scarcity.
Course handbook guidance: Part 1, item I.F
Based on the graph, what is the likely result of a new employer moving to town?
A. The demand curve shifts to the left and equilibrium rent decreases, which constrains the increase in demand.
B. The demand curve shifts to the left and equilibrium rent increases, which accelerates the increase in demand.
C. The demand curve shifts to the right and equilibrium rent decreases, which accelerates the increase in demand.
D. The demand curve shifts to the right and equilibrium rent increases, which constrains the increase in demand.
D. The demand curve shifts to the right and equilibrium rent increases, which constrains the increase in demand.
(Constraints=bedingt)
Course handbook guidance: Part 1, item I.G
If supply remains constant, what is the effect of a decrease in interest rates that shifts demand away from apartments and toward owner-occupied housing?
A. The demand curve shifts to the left and equilibrium rent decreases, which exacerbates the decrease in demand.
B. The demand curve shifts to the left and equilibrium rent decreases, which limits the decrease in demand.
C. The demand curve shifts to the right and equilibrium rent increases, which exacerbates the decrease in demand.
D. The demand curve shifts to the right and equilibrium rent increases, which limits the decrease in demand.
B. The demand curve shifts to the left and equilibrium rent decreases, which limits the decrease in demand.
(Exacerbates=verschärfen)
Course handbook guidance: Part 1, item I.G
What is the result of demolition of two large apartment communities?
A. The supply curve shifts to the left and equilibrium rent decreases, which reduces demand.
B. The supply curve shifts to the left and equilibrium rent increases, which reduces demand.
C. The supply curve shifts to the right and equilibrium rent decreases, which increases demand.
D. The supply curve shifts to the right and equilibrium rent increases, which reduces demand.
*B. The supply curve shifts to the left and equilibrium rent increases, which reduces demand.
Course handbook guidance: Part 1, item I.G
What will happen if a large number of new units are constructed, all other things being equal?
A. The supply curve will shift to the left and equilibrium rent will decrease, which will increase demand.
B. The supply curve will shift to the left and equilibrium rent will increase, which will increase demand.
C. The supply curve will shift to the right and equilibrium rent will decrease, which will increase demand.
D. The supply curve will shift to the right and equilibrium rent will decrease, which will reduce demand.
*C. The supply curve will shift to the right and equilibrium rent will decrease, which will increase demand.
Course handbook guidance: Part 1, item I.G
Office demand in a market is expected to increase from 1,000,000 square feet currently to 1,050,000 in five years. The current supply of office space is 1,100,000 square feet and is expected to grow to 1,250,000 in five years. What is the likely trend in rents over the next five years?
A. Rents are likely to decrease. (Occupancy rate will decline.)
B. Rents are likely to increase.
C. Rents are likely to stay about the same.
D. Cannot be determined.
*A. Rents are likely to decrease. (Occupancy rate will decline.)
Course handbook guidance: Part 1, item I.G
Are there appraisal assignments that do not require a highest and best use determination? Can you identify several?
Use value (value of a property for a specific use)
Investment value (value of a property to a particular user)
Insurable value
Absorption and Choice of Comparables:
You are appraising a vacant parcel that is zoned exclusively for commercial office use. No change in zoning is expected. Your search of the market revealed three sales of similar properties, but the most recent sale occurred more than two years ago and all three properties remain vacant.
A similar parcel located directly across the street sold and settled within the past month. This property was bought for hotel development, the only use for the parcel permitted by the zoning code.
A. What conclusions can you draw about the current state of the commercial office market in this community?
B. Should the sale located across the street be used as a comparable?
A: There appears to be a lack of recent sales (a form of absorption) in this market, which could indicate an oversupply. Under such conditions, purchasers could be reluctant to pay full price for a product that cannot be used immediately.
B: Probably not. The sale across the street has a different highest and
best use (hotel) than the subject property (commercial office).
The first requirement for choosing a comparable is that it match the subject property in highest and best use, since it is the use that gives the property value. Without some way to support an adjustment for the difference in highest and best use, the comparable is unreliable as an indicator of value for the subject property and should not be used.
What happens to value if purchasing power increases?
Demand increases, pushing the demand curve to the right and moving the price upward.
What happens to value if market preferences change to favor another property type?
Demand decreases, shifting the demand curve to the left, moving the price downward.
What happens to value if construction funds are denied in a community?
Supply will become static and unable to respond to increasing demand.
What happens to value if mortgage credit becomes scarce or underwriting guidelines become more stringent?
Demand will decrease, pushing the demand curve to the left, moving the price downward.
How might the scientific method be applied to the market analysis process on a retail site?
Step X: The Scientific Method
1: Identify the problem.
The problem is to conclude the use that will create the greatest value for the site.
2: Formulate a hypothesis.
3: Establish data requirements.
4: Apply appropriate methodology.
5: Reconcile the findings to solve the problem.
2: The site could support a retail center.
3: Obtain information about the present, past, and future performance of competitive space.
4: Perform a personal survey of competitive space to determine size, occupancy, rental rates, etc.
5: Conclude that current market conditions indicate adequate or inadequate support for additional space.
Place the appropriate letter from the box in the left-hand column next to the number in the right-hand column
A. Appraisal
B. Scientific method
C. Desire
D. Scarcity
E. Utility
F. Market analysis
- A market analysis that culminates in an opinion of value for a particular property
- A purchaser’s wish for an item to satisfy human needs or individual wants beyond the essentials required to support life
- A generally known process of problem solving and research in the natural and social sciences
- The undersupply of a product relative to the demand for it
- A process for examining the
of a property type and the geographic market area for that property type - The ability of a property to satisfy a human want, need, or desire
- Appraisal: A market analysis that culminates in an opinion of value for a particular property.
- Desire: A purchaser’s wish for an item to satisfy human needs or individual wants beyond the essentials required to support life
- Scientific Method: A generally known process of problem solving and research in the natural and social sciences
- Scarcity: The undersupply of a product relative to the demand for it
- Market Analysis: A process for examining the
of a property type and the geographic market area for that property type - Utility: The ability of a property to satisfy a human want, need, or desire
