Chapter 15 - Real Estate Market Economics

Question 1

The foremost factor contributing to commercial and residential demand in a market is

Answer 1

base employment.

Question 2

Price is best described as

Answer 2

the amount of money a buyer and seller agree to exchange to complete a transaction.

Question 3

A construction boom in a market is an indication that prices

Answer 3

have been increasing.

Question 4

Two important concerns of retail property users are

Answer 4

trade area population and spending patterns

Question 5

Understanding the fundamentals of real estate economics enables one to:

Answer 5

 recognize the effect of current economic conditions in the real estate market on transactions, prices, and values
 apply economic principles to estimates of future conditions in the real estate market
 apply economic principles to specific geographical areas and property types in order to assess economic conditions for a particular property and site

Question 6

Supply is the

Answer 6

quantity of a product or service available for sale, lease, or trade at any given time

Question 7

Demand is the

Answer 7

quantity of a product or service that is desired for purchase, lease, or trade at any given time.

Question 8

The value of something is based on the answers to four questions

Answer 8

 How much do I desire it?
 How useful is it?
 How scarce is it?
 Am I able to pay for it?

Question 9

Desire

Answer 9

how dear the item is to the purchaser.

Question 10

Utility

Answer 10

the product’s ability to do the job.

Question 11

Scarcity

Answer 11

is a product’s availability in relation to demand.

Question 12

Purchasing power

Answer 12

is the consumer’s ability to pay for the item.

Question 13

A market is a place where

Answer 13

supply and demand encounter one another: suppliers sell or trade their goods and services to demanders, who are consumers and buyers. It is a transaction arena

Question 14

if supply increases relative to demand

Answer 14

price decreases

Question 15

if supply decreases relative to demand

Answer 15

price increases

Question 16

if demand increases relative to supply

Answer 16

price increases

Question 17

if demand decreases relative to supply

Answer 17

price decreases

Question 18

market equilibrium

Answer 18

supply equals demand, and price, cost, and value are identical

Question 19

The equilibrium time lag

Answer 19

there is always a time lag between a recognized imbalance and the completion of the market adjustment

Question 20

Economic characteristics
of real estate

Answer 20

 subject to the laws of supply and demand
 governed in the market by the price mechanism
 influenced by the producer’s costs to bring the product to market
 influenced by the determinants of value: utility, scarcity, desire, and purchasing power

Question 21

Distinguishing features. In comparison with other economic products and services, real estate has certain unique traits. These include:

Answer 21

 Inherent product value
 Unique appeal of product
 Demand must come to the supply
 Illiquid
 Slow to respond to changes
 Decentralized, local market

Question 22

In real estate, supply is the

Answer 22

amount of property available for sale or lease at any given time.

Question 23

Residential users are concerned with

Answer 23

 quality of life
 neighborhood quality
 convenience and access to services and other facilities
 dwelling amenities in relation to household size, lifestyle, and costs

Question 24

Retail users are concerned with

Answer 24

 sufficient trade area population and income
 the level of trade area competition
 sales volume per square foot of rented area
 consumer spending patterns
 growth patterns in the trade area

Question 25

Office users are concerned with

Answer 25

 costs of occupancy to the business
 efficiency of the building and the suite in accommodating the business’s functions
 accessibility by employees and suppliers
 matching building quality to the image and function of the business

Question 26

Industrial users are concerned with

Answer 26

 functionality
 the availability and proximity of the labor pool
 compliance with environmental regulations
 permissible zoning
 health and safety of the workers
 access to suppliers and distribution channels

Question 27

The engine that drives demand for real estate of all types in a market is

Answer 27

employment– base employment and total employment.

Question 28

Base employment is the

Answer 28

number of persons employed in the businesses that represent the economic foundation of the area.

Question 29

Vacancy is the

Answer 29

amount of total real estate inventory of a certain type that is unoccupied at a given time

Question 30

Absorption is the

Answer 30

amount of available property that becomes occupied over a period of time.

Question 31

Local market influences. Since the real estate market is local by definition, local factors weigh heavily in local real estate market conditions. Among these are:

Answer 31

 cost of financing
 availability of developable land
 construction costs
 capacity of the municipality’s infrastructure to handle growth
 governmental regulation and police powers
 changes in the economic base
 in- and out-migrations of major employers

Question 32

National trends. Regional and national economic forces influence the local real estate market in the form of:

Answer 32

 changes in money supply
 inflation
 national economic cycles