EXAM 2 Flashcards
to economists, what is a city?
a location where there is a dense amount of economic activity compared to its surrounding area
why did cities emerge?
bc people prefer to have households, firms, etc. close together instead of spread out
what are economies of scale?
- growth within a locality that creates special resources and cost advantages for an industry
- ex: specialized labor like the silicon valley
what are economies of agglomeration?
- specialized resources merge in response to demand from multiple industries
- airports and transportation
where did cities occur?
- preindustrial: fortresses or religious centers
- transition points in trade routes
- near natural resources
what factors might lead to a concentration of economic activity?
- locations with raw material
- successful modern cities
what are basic employers?
- the most important role in the economy
- employers that have a product/service they trade with other economists
- they drive growth and attract outside money
- ex: tourist attractions, corporate headquarters
what are service employers?
- employers whose trade area is within the local economy
- sustain the community by circulating money internally
- ex: restaurants, grocery stores
what is an economic base?
- activities that bring income into the city
- accomplished by products/services that are provided to the outside world
- secondary (local) activities recirculate income in the city
- multiplier effect: income is spent and re-spent bc basic employers trade w other local economies
the economic growth process
- when the economic base expands, the amount of income in the local economy also increases
- causes multiplier effect
- total change in income in the local economy is greater than initial change in economic base
the multiplier effect is greater when the city is…
- more isolated
- more diverse
- larger (they offer more goods and services)
- the base activity uses more local goods and services
- multiplier size is determined by how much income stays within local economy
what is location quotient (LQ) of an economic base?
local share % / national share %
*if the answer is > 1, then the industry is classified as part of the economy’s base
why do we need to estimate the value of real estate?
- no 2 properties are the same
- transactions are infrequent
- real estate is immobile
what is the value of a building determined by?
the rent it generates
who uses real estate appraisals?
lenders, buyers and sellers, courts
what is an appraiser’s job?
to estimate the market value of a property
what is market value?
the most probable selling price under normal market conditions present today
what is investment value?
the value of the property to a particular investor
what are transaction prices?
the amount actually paid for a property in a completed transactionwh
what is the appraisal process guided by?
the Uniform Standards of Professional Appraisal Practice
what are the steps of the appraisal process?
- 1&2: identify problem and define scope: who and what is the appraisal for?
- 3: collect data and describe property: market characteristics, property and condition characteristics
- 4&5: perform data analysis and estimate value of the land: market analysis and economic base analysis
- 6: application of the 3 valuation methods: sales comparison, cost, and income approach
- 7: reconcile indicated value from the 3 approaches: appraisal cannot be 3 #s, so you take weighted average of all
- 8: report final value estimate
what is the sales comparison approach?
- the value of a piece of real estate can be determined by analyzing the sale prices of similar properties
- preferred method bc it is most directly tied to what is happening in the market
what is the sales comparison approach process?
- identify elements of comparison and value adjustments
- select comparable sales
- adjust the transaction price of each comparable with respect to the subject property
- reconcile the adjusted sale prices of comps to obtain indicated value for subject property
what are the elements of comparison?
- goal is to identify the key determinants of value
- elements include location, size, style, age
