Module 11

Question 1

Change is premised on the ________________relationship that takes place in the market

Answer 1

Cause and effect

Question 2

Economic Principles in Real Estate

Answer 2

Competition
Change
Anticipation
Supply and demand

1. Principle of change
2. Principle of anticipation
3. Principle of supply and demand
4. Principle of competition

Question 3

Property values vary _____ with changes in supply.

Answer 3

inversely

Question 4

The ability of an individual or group to participate in a market.

Answer 4

Effective purchasing power

Question 5

The desire to buy coupled with the ability to pay.

Answer 5

Effective demand

Question 6

The appraisal principle that states that when several similar or commensurate commodities, goods, or services are available, the one with the lowest price will attract the greatest demand and widest distribution.

Answer 6

Substitution

Question 7

______ is a subprinciple of substitution. It is the cost of options foregone or opportunities not chosen.

Answer 7

Opportunity cost

While an investor’s money is tied up in one property, there may be opportunities that the investor has to pass on that may be potentially more lucrative.

Question 8

The principle that real property value is created and sustained when contrasting, opposing, or interacting elements are is a state of equilibrium.

Answer 8

Balance

Question 9

This principle focuses on land and improvements

Answer 9

Balance

I.e.,. a situation where a site improvement does not fit in with its surrounding properties.

Question 10

The concept that successive increments of one or more agents of production added to fixed amounts of the other agents will enhance income or value at an increasing rate until a maximum return is reached. Beyond a certain point, each additional unit will add less income or value than the unit before it. Also called law of increasing returns or law of decreasing returns.

Answer 10

Increasing and decreasing returns.

Question 11

The concept that the value of a particular component is measured in terms of the amount it adds to the value of the whole property or as the amount that its absence would detract from the value of the whole.

Answer 11

Contribution

Question 12

The net income that remains after the costs of various agents of production have been paid.

Answer 12

Surplus productivity.

Question 13

The appraisal principle that real estate value is created and sustained when the characteristics of a property conform to the demands of its market.

Answer 13

Conformity

Question 14

The compatibility between a property and its surroundings

Answer 14

External conformity.

Question 15

The condition that exits when labor, capital, coordination, and land are appropriately combined in a property.

Answer 15

Internal conformity.

Question 16

The principle that economies outside a property have a positive effect on its value while diseconomies outside a property have a negative effect on its value.

Answer 16

Externalities

Question 17

_____ externalities. This is the infrastructure such as roads, highways, bridges, utilities, water towers, police and fire protection.

Answer 17

Positive externalities

Question 18

______ externalities. These are inconveniences imposed on property owners by the action of others. For example an industrial company that pollutes a waterway imposes a negative influence upon property owners downstream from the plant.

Answer 18

Negative externalities

Question 19

The reasonably probable use of property that results in the highest value.

Answer 19

Highest and Best Use

Question 20

The four criteria that the highest and best use must meet are:

Answer 20

a. Legal permissibility
b. physical possibility
c. financial feasibility
d. maximum productivity

Question 21

What is the difference between excess land and surplus land?

Answer 21

Excess land has the potential to be sold separately and is valued separately.

Surplus land cannot be separated from the property and sold off for another use.

Question 22

Under a use that simply marks time until a different use becomes maximally productive.

Answer 22

Interim Use

Question 23

The concept that land cannot be valued on the basis of one use while the improvements are valued on the basis of another.

Answer 23

Consistent use