final exam Flashcards
What entity is considered the authority on determining when the U.S. economy is in a recession?
National Bureau of Economic Research
At which stage of the real estate cycle does the federal government often lower interest rates to maintain construction levels?
Recession
If a knowledgeable buyer purchased a property from a seller who is significantly less knowledgeable, this is an example of:
Information asymmetry
What is a major cause of inefficient markets, especially relating to real estate?
Information asymmetry
The four stages of the real estate cycle are typically:
Expansion, contraction, recession, recovery
What could be an early indicator of a declining market?
Rising vacancy rates
What type of corporation invests in real estate, pays no corporate taxes, and distributes 90% of the income to investors?
Real Estate Investment Trust
T/F Buyers and sellers of real property are usually equally knowledgeable about the subject property and local market conditions.
FALSE
What is one of the reasons why real estate is an inefficient market?
Properties are not easily or quickly produced
REAL ESTATE IS AN EFFICIENT/INEFFICIENT MARKET, WHILE STOCKS ARE AN _____ MARKET
INEFFICIENT, EFFICIENT
Data that relates directly to the subject property is identified as:
Specific data
A vacant property is zoned for apartments. Because it is situated adjacent to an operating sanitary landfill, the property has remained undeveloped for many years. This is an example of a/an _____________ force affecting real estate.
ENVIRONMENTAL
A local municipality issues a moratorium on building permits because of concerns that local sewage systems are draining into a local waterway. This is an example of a/an _____________ force affecting real estate.
GOVERNMENTAL
At which stage in the real estate cycle does competition among sellers increase, resulting in a decrease in profits?
Contraction
What type of analysis defines the geographic demand for a specific property?
Market delineation
At which stage of the real estate cycle does the federal government often lower interest rates to maintain construction levels?
Recession
What is the term for the process that defines and subdivides a large homogenous market based on location, demographics, and consumer behavior?
Market segmentation
The four agents of production
LAND, LABOR, CAPITAL, entrepreneurial coordination
The “four great forces” that affect real property value are
governmental, environmental, economic, and social
Before researching the market, an appraiser must
Identify the subject’s market area
What model can be used to explain growth patterns around major employment centers?
Concentric Ring Growth Pattern
Market segmentation defines and subdivides a large homogenous market into segments based on
Consumer behavior, DEMOGRAPHICS, LOCATION
An economic theory where value is created by expectations of future benefits such as income, appreciation, tax benefits, etc.
Anticipation
An economic principle; the condition caused when values are proportional by various factors
Balance
An economic principle that demonstrates new social patterns, technology, employment, transportation, and other factors create new demands for real estate.
CHANGE
An economic principle stating that individuals and firms strive for a greater share of a market to sell or buy goods and services, each acting independently by offering the most favorable terms.
COMPETITION
An economic principle which states that property value is maximized when the characteristics of a property are in conformance with market expectations and demands.
CONFORMITY
_______ holds that the value of a component of a property is based on its contribution to the value of the whole property. This principle is also known as marginal productivity.
CONTRIBUTION
An economic principle pertaining to an item or event which is external to the boundaries of the property. It can have a positive or negative effect on the property. Many of the forces that affect or influence real estate values pertain to governmental, environmental, economic, and social factors.
EXTERNALITIES
Relates to information appropriate for many properties which includes all of the four forces (social, economic, environmental, and governmental).
GENERAL DATA
An economic principle that states a feature, repair, addition, etc. might increase or decrease real estate value. As such, the laws of increasing or decreasing returns states that beyond a certain point in time, the feature, repair, addition, etc. will either add or decrease value.
INCREASING/DECREASING RETURNS
The classification and study of current supply and demand conditions in a particular area for a specific type of property.
MARKET ANALYSIS-the market analysis develops the supportable basis for determining highest and best use, vacant or improved.
An economic principle; the income lost by not choosing an alternative.
OPPORTUNITY COST
Data that has been compiled for a specific purpose and has not been collated or merged with others.
PRIMARY DATA-Primary data relates to specific markets in which the property is located and may include specific sales information, surveys of buyers’ preferences, absorption statistics for the assignment, and competitive inventory surveys.
The amount of money an investor retains after debt is paid. Examples include before-tax cash flow or an equity dividend.
RESIDUAL INCOME
Encompasses publications and other sources of information that were prepared by someone other than the appraiser.
SECONDARY DATA-Sources of secondary data may include government reports, Chamber of Commerce publications, census reports, rent studies, published sales data services, etc.
Relates to information used directly in the analysis of the subject property and while encompassing the comparables used in the valuation process.
SPECIFIC DATA
An economic principle that is the replacement of one thing with another.
SUBSTITUTION
Entails examining and analyzing the current competitive properties and their characteristics based on economic, financial, location factors as well as site and building size, if appropriate.
SUPPLY ANALYSIS
An economic principle describing how values or prices are related to the number of goods made available [supply] and the number of goods people want [demand].
SUPPLY AND DEMAND
An economic principle; the net income that remains after the costs of labor, capital, and entrepreneur profit have been paid and which is attributable to the value of the land.
SURPLUS PRODUCTIVITY
The center of an urban area, typically zoned for various uses such as retail, office, and residential. Further, in some areas, transportation starts and ends in the CBD since it is the central location for employment.
Central Business District (CBD)
A non-residential property for use as office, hotel, or retail. Nearly all local governments require restrictions for commercial locations in conjunction with residential properties.
Commercial real estate
_________ is a common concept in economics, and gives rise to derived concepts such as consumer debt.
CONSUMPTION
Consumer debt that has been paid.
CONSUMER CREDIT
Consumer credit which is outstanding. In macroeconomic terms, it is debt which is used to fund consumption rather than investment.
CONSUMER DEBT
Event that occurs in a life cycle when an economy or area no longer can compete at a profitable level due to sale decreases resulting in decreased occupancy, absorption rates, and construction.
Decline, contraction, downturn, or recession
The desire for a specific good or service.
DEMAND
Demand analysis that includes the investigation and identification of the most probable user, including their preferences based on behavioral, motivational, and psychological factors.
DEMAND SEGMENTATION
The study of a population and its characteristics such as age, sex, familial status, occupation, etc.
DEMOGRAPHICS
The social science that studies the production, distribution, and consumption of goods and services.
ECONOMICS
Characterized by goods or services that are easily produced and readily transferable, with a large volume of knowledgeable buyers and sellers.
EFFICIENT MARKET
Relates to information appropriate for many properties; includes all of the four forces (social, economic, environmental, and governmental).
GENERAL DATA
The preliminary stage in a life cycle that refers to increased development of an area.
GROWTH OR EXPANSION
A market characterized by an uneven flow of information, with goods and services that are not easily produced or transferable.
Inefficient market
During the negotiation process, only one party is privy to important information that may affect the outcome of the transaction.
Information asymmetry-Information asymmetry causes inefficient markets, since all the market participants do not have access to the information needed for their decision making processes.
Real estate is purchased with the expectation of attaining a return on investment, with the intention of using it as an investment vehicle and/or a consumer good.
Investment and Consumer Goods
A partnership with at least one passive partner whose liability is limited to the amount invested and at least one partner whose liability extends beyond the monetary investment.
Limited partnership (LP)
Define the primary and secondary market areas and include the type of tenants or clientele buildings might attract and their location, as well as time-distance relationship to nearby complementary services such as restaurants, schools, voting districts, etc. as compared to the competition.
Market area delineation concepts
Defines the geographic demand for a specific property.
Market delineation
Someone involved in a real estate transaction who receives and possibly acts upon all relevant information.
Market participant
Defines and subdivides a large homogenous market into segments based on location, demographics, and consumer behavior.
Market segmentation
A tax designation for a corporation investing in real estate, reducing or eliminating corporate income taxes.
Real estate investment trust (REIT)-In return, REITs require distribution of 90% income, which may be taxable, into the hands of the investors.
A succession of submarkets with various desires and needs for each market participant that change autonomously of one another based on a group of complementary land uses that may be divided by natural barriers, political boundaries, districts, income levels of inhabitants, or streets.
Real estate market
The general contraction of the business cycle in economics during a sustained period of time. This occurrence is typically over two consecutive quarters of negative GDP growth.
Recession
Occurs in a life cycle after a decline and before the growth cycle occurs again.
Revitalization, upturn, or recovery-Revitalization may occur due to rehabilitation and/or renovation as an area undergoes gentrification.
Stability, slowdown, or downturn that follows the growth stage within a life cycle, especially when an area grows at a slower rate.
Stabilization
Buying and selling real estate is much more expensive than most types of transactions. These costs include financing, commissions, closing costs, title insurance, moving costs, legal fees, land transfer taxes, deed registration fees, etc.
Transaction Costs
The principle of anticipation applies only in the appraisal of income-producing properties.
False
The principle which holds that the net income attributable to the land after the costs of labor, capital, and entrepreneurial profit have been paid is:
Surplus productivity
When do improvements add the most value to a property?
When the property is used for its highest and best use
A _________ includes supply and demand analysis along with the collection of market data, analyses, and recommendations.
Market analysis
An apartment building owner wishes to construct a new garage building for his tenants, at a cost of $80,000. The principle of contribution holds that the value of this new garage is:
Based on its contributing value to the total property
What is achieved when numerous factors exert proportional influence on value?
Balance
What is the loss of income by not choosing an alternative called?
Opportunity Cost
Which phrase best describes equilibrium price?
The market price that is set by interaction of supply and demand
What type of GIS application is classified into three functionality categories: GIS Viewer, GIS Editor, and GIS Analyst?
Desktop GIS
Data that was prepared by someone other than the appraiser would be considered _______________ data.
Secondary
What type of data directly relates to the subject property?
Specific data
What best allows the appraiser to observe the market area that influences the value of the subject property?
A visual inspection
A particular GIS program has a representation of buildings as rectangles, with two attached fields that detail the building owner and the year built. This would be considered a ____________ representation.
Vector
Field notes and building measurements that the appraiser took during the physical inspection of the subject property would be considered ___________ data.
Primary
____________ are typically used to represent variables that are continuous over space, such as terrain elevations or land cover.
Rasters
The principle of ___________ states that a prudent purchaser will pay no more for a property than he or she would pay for a similar or comparable property.
Substitution
In a competitive market, ________ will function to equalize the quantity demanded by consumers and the quantity supplied by producers.
Price
The total demand for a type of real estate offered on the open market by all economic agents resident in an economy that may be leased or sold during a certain period of time.
Absorption
Professional management of real estate to meet specified asset goals for the advantage of the investors. Investors may be insurance companies, lenders, pension funds, corporations, or private investors.
Asset manager
A ___________ is defined as the estimated percentage of the total potential market for a specific type of property.
Capture rate
A person or company who typically purchases a tract of vacant land and develops the real estate with improvements to yield a profit.
Developer
A part of real estate development wherein vacant land is purchased after a design conception, financed, and sold.
Development process
A survey of the industries and businesses that generate employment and income in a community as well as the rate of population growth and levels of income, both of which are functions of employment.
Economic base analysis- is used to forecast the level and composition of future economic activity. Specifically, the relationship between basic employment (which brings income into a community) and nonbasic employment (which provides services to workers in the basic employment sector) is studied to predict population, income, or other variables that affect real estate values or land utilization.1
An analysis or study involving examination of geographic locations for a real estate development project as well as a cost-versus-value analysis.
Feasibility study
The study of capital and income that characterizes the financial services industries as part of the SIC/NAIS breakdown of types of industry: finance, Insurance, and real estate. The SIC was replaced by the North American (Canada, USA, Mexico) Industry Classification System (NAICS) in 1997.
FIRE (finance, insurance, real estate)
A method that compares the subject share of the market, adjusts the subject to the competition using quantifiable rating techniques, calculates the subject historical capture rate, and other factors.
Fundamental capture method
In retailing, general merchandise such as apparel, furniture, etc.
General merchandise, apparel, furniture, and other (GAFO)
The study of economic and market trends, earnings calculations, and various other market indicators to determine investment strategies.
Investment analysis
A _____________ or study consists of interviews, comprehensive data, maps, tables, etc. and demonstrates the marketability of a specific property or the possible future of an existing property.
Marketability analysis
A calculation derived by adding the sum of data and dividing by the number of items.
Mean
Describes the differences within a population in a statistical calculation.
Measure of dispersion
The middle number within a series of numbers arranged by sequence in statistical analysis.
Median
The number that occurs most frequently within statistical analysis.
Mode
A smooth symmetrical bell-shaped curve. The normal distribution can describe many populations.
Normal distribution
