Unit 1: Introduction To Modern Real Estate Practice Flashcards

Question

Only members of what may be called Realtors? Other agents are called?

Answer 1

NAR Only members of NAR may be called REALTORS®; other agents are simply real estate license holders or agents

Answer 2

relative scarcity, improvements, permanence of investment, area preference, immobility, indestructibility, and nonhomogeneity. These characteristics fall into two broad categories: economic and physical. RIPA & IIN

Answer 3

So, scarcity in this sense refers to the fact that although land exists elsewhere, the amount of land available in a high-demand area is limited and therefore valuable. In economics, “scarcity” doesn’t mean that there’s literally none of something available. It means that the supply of a resource is limited relative to the demand for it. With land, the total amount is fixed because you can’t “make” more land. However, the value or usefulness of land varies by location and quality, which creates scarcity in specific areas.

Answer 4

Improvements on land refer to any construction or modification made to a piece of property that can affect its value and potentially impact surrounding areas. For example, if someone builds a new shopping mall on a vacant piece of land, this could make nearby properties more valuable because they are now closer to amenities. The mall may attract businesses, increase foot traffic, and make the area more appealing for other types of development, which can raise property values in the surrounding neighborhood. On the other hand, if a factory is built, especially one that produces noise or pollution, it might lower the value of nearby homes or properties because people might not want to live or work near it. This negative impact could ripple through the surrounding area, causing a decrease in property values. So, improvements affect not only the parcel where the change is made but can also influence surrounding parcels and even whole communities, either positively or negatively, depending on the nature of the improvement.

Answer 5

“Permanence of investment” in real estate refers to the idea that certain investments made in land or property are long-lasting and can’t easily be moved or changed. When money and labor are spent on things like building a structure or installing essential infrastructure (like water, drainage, and electricity), these improvements are “fixed” — they can’t be picked up and relocated, and they usually last a long time. For example, when a city installs water lines or electricity in an area, those installations are intended to be used for decades. Similarly, if someone builds a shopping center, they expect it to be useful and profitable over its “economic life,” often 20 to 30 years. This permanence means that, when investing in real estate or making land-use decisions, it’s crucial to consider not only the current needs but also what might be needed or valuable far into the future. Investors think long-term about how useful and profitable their improvements will be over many years, as changing or removing these fixed investments can be costly or difficult.

Answer 6

“Area preference,” or situs, refers to the idea that people value certain areas or locations differently based on their personal preferences and needs, not just on physical characteristics. This concept explains why two similar plots of land, or houses of the same size, can have different values depending on where they are located and how people feel about those locations. For example, some people might prefer to live on a corner lot because it offers more space, visibility, or access, and they might be willing to pay more for it. On the other hand, someone else might prefer a lot in the middle of a block because it feels quieter or more private, so they’d value it more. This preference for certain areas influences property values significantly, often making area preference one of the most important economic characteristics of land. It’s not just about physical location but about how desirable people find an area, which can depend on things like schools, safety, convenience, or even aesthetic appeal.

Answer 7

“Immobility” in real estate means that land cannot be moved. While buildings and improvements can be constructed or even removed, the location of a piece of land will always stay the same — it’s fixed geographically. This characteristic of immobility affects the real estate market in a couple of ways: 1. Land Can’t Move: Imagine that each piece of land is “stuck” in one place forever. You can’t pick up a piece of land in Texas and move it to California. This is what “immobility” means in real estate. 2. Property Taxes and Government Revenue: Because the amount of land in an area doesn’t change, local governments (like cities and counties) can rely on property taxes from this land to fund public services, like schools and roads. Since they know land won’t go anywhere, they can predict tax revenue and plan long-term. providing stable income for local governments 3. he fixed position of land creates local markets, where each area has its own value and demand based on what people in that area want or need. This is why real estate is so “local”; each area has its own distinct market based on what people value about that location. real estate is very “local.” Different locations have unique markets, values, and characteristics.

Answer 8

Here’s an explanation of the concept that land is indestructible and not insurable or depreciable: 1. Indestructibility of Land • Definition: Land itself is considered physically indestructible because it cannot be destroyed or worn out in the same way that buildings or other improvements (such as roads, structures, or landscaping) can. Regardless of natural disasters or human activity, the land’s physical presence remains. • Impact on Value: While land may retain its physical presence, factors like economic changes, zoning regulations, or environmental damage can reduce its market value. However, this reduction is not due to physical depreciation but external factors. 2. Depreciation and Improvements • Improvements (Depreciable): Structures built on land, like buildings, degrade over time due to wear and tear, obsolescence, or environmental factors. These improvements can lose value over time, which is accounted for through depreciation in accounting. • Land (Non-Depreciable): Unlike improvements, land itself does not deteriorate or wear out, so it cannot be depreciated. In accounting, depreciation applies only to assets that have a limited useful life, which does not include land. 3. Insurability • Land is Not Insurable: Insurance typically covers damage or loss of improvements (such as buildings) caused by events like fire, storms, or theft. Since land cannot be physically destroyed, there is no need to insure it. However, improvements on the land (such as houses or other structures) can be insured. • Land Value Fluctuations: While the market value of land may decrease (due to economic or environmental changes), these changes are not considered insurable risks because they don’t involve physical damage to the land itself. Summary Land is considered permanent and indestructible, which means: 1. It cannot be depreciated because it does not physically wear out. 2. It is not insurable since it cannot be destroyed by physical events. 3. Improvements (buildings, infrastructure) on the land, however, can depreciate and can be insured against risks like natural disasters or accidents. This concept is crucial in real estate investing and accounting, as it affects both risk management and tax treatment of real estate assets.

Answer 9

1. Nonhomogeneity (or Heterogeneity) • Definition: Nonhomogeneity means that no two pieces of land are exactly alike. Even if two parcels of land have similar features (size, shape, or usage), they differ because of their location and other unique characteristics (elevation, soil type, surrounding infrastructure, etc.). • Why It Matters: • Each property has a unique legal identity, which is reflected in its legal description and address. • This uniqueness affects property value, as location plays a major role in how desirable a property is. • When transferring or selling property, the law must clearly define which unique piece of land is being referred to, preventing disputes over ownership or legal rights. 2. What is a Parcel of Land? • A parcel is a specific, defined portion of land. It’s essentially a “unit” of land with boundaries and legal identification (like a legal address or description). • Parcels can vary in size from small residential lots to large agricultural or commercial properties. • Each parcel is identified in legal documents such as deeds, property tax records, and zoning maps. Example: If someone owns a 5-acre lot, that entire 5-acre area is a parcel of land. 3. What is a Lien? • A lien is a legal claim placed on a property by a creditor to ensure that a debt will be repaid. • How it works: • If someone borrows money to buy a home (e.g., through a mortgage), the lender places a lien on the property. • If the borrower fails to repay the loan, the lien gives the lender the right to foreclose on the property and sell it to recover the debt. • Liens can be placed for various reasons, including: • Mortgages (most common) • Unpaid taxes • Unpaid contractor work (e.g., a mechanic’s lien) Example: You take out a $200,000 mortgage. The lender has a lien on your home. If you fail to make payments, the lender can force a sale of the property to recoup their money. Summary • Nonhomogeneity: No two parcels of land are identical due to differences in location and features. • Parcel: A defined portion of land with legal boundaries and identification. • Lien: A legal claim on property used as collateral for a loan or unpaid debt, which gives the lender rights over the property if debts are not paid.

Answer 10

Hilly or forested land is better for residential use but requires significant work for industrial development. Flat land near highways may not be suitable for residential areas due to noise but is ideal for industrial, commercial, or office purposes. Prevailing winds can affect comfort and safety, influencing where homes or factories are built.