Unit 2 - The Real Estate Market Flashcards
Short term real estate cycles are driven by what?
Long-term?
Short term real estate cycles are driven by consumer confidence, interest reates, and localized economic conditions.
Longer cycles are impacted by broader demographic considerations
What indicators measure the length and amplitutde of prosperity and recession cycles in regards to real estate?
- Housing prices
- new and resale inventory
- building starts/completions
- consumer confidence
- mortgage rates
What are the two primary sources most active real estate professionals rely on for market information?
- Brokerage files: specialized data relating to the market areas that broker services
- MLS Services: The statistics from the MLS fuel much analysis
Define the overnight rate
The overnight rate is a daily rate that the bank of Canada sets and is the rate the banks charge each other for large cash transfers.
What are the three mechanisms appraisers use to arrive at an estimate of value?
- The cost approach
Finding value by analyzing actual costs of things - The income approach
Emphasizes subjective values - Direct Comparison approach
What are the 4 assumptions of market value?
- Reasonable time
- No undue pressure
- Prudent behaviour
- Informed Buyer & Seller
There are 15 principles of value. Explain these 5:
- Anticipation
- Balance
- Change
- Competition
- Conformity
- Anticipation
The buyer anticipates that a feature (such as double garage) will provide them with a certain amount of value - Balance
The asset features have to be in balance. For example, a massive home with only 1 bathroom is unbalanced and wont achieve it’s maximum value - Change
Values change. Hard stop. - Competition
Overstimating market demand and then overcompensating with an abundance of competing options lowers the value of things. - Conformity
Houses that conform with one another tend to hold their value together.
There are 15 principles of value. Explain these 5:
- Consistent Use
- Contribution
- External factors
- Highest and best use
- Increasing/Decreasing returns
- Consistent Use
Can’t examine properties in components. For example, can’t just add house-cost+land-cost and get property cost. You have to evaluate the total package. - Contribution
A contribution such as a swimming pool may cost 36,000, but only increase value by 28,000. Value relates to contribution, not cost. - External factors
Such as a noisy highway reducing value of the home - Highest and best use
Could the home be turned into high value multi-family home from the zoning laws it sits on? This potential can raise the value - Increasing/Decreasing returns
There is diminishing returns. Can’t just keep adding garages or more coats of paint.
There are 15 principles of value. Explain these 5:
- Progression
- Regression
- Substitution
- Supply and Demand
- Surplus productivity
- Progression
So when your the odd one out on the low end, all the high end houses around you can bring you up in value - Regression
Inversely to progression, a really nice house surrounded by dumps will be of lower value - Substitution
Buyers always on the lookout for alternatives. - Supply and Demand
listing to listing inventory, selling price ratios, number of days on market, total sales volume, and sales prices are watched to track supply and demand - Surplus productivity
So productivity that the land produces divided by the cap rate could be value. For example if cap rate is 10%, farming if net income of 28,000 / .10 = $280,000
What are the 8 appraisal process steps?
- Define the problem
- Preliminary inspection & planning the work
- Data collection & analysis
- Apply the cost approach
- Apply the direct comparison approach
- Apply the income approach
- Reconciliation and final estimate
- Write the appraisal report
What is value in exchange?
Value in exchange is the price at which goods are traded in the open marketing place. It’s essentially synonymous with market value
What is a CMA (comparative market analysis) trying to estimate?
It is trying to establish a listing price of a property – NOT a market value. Appraisals estimate market value, not CMAs.
General economic indicators and related statistics can be grouped under which three buckets?
- Resource Markets
- Businesses
- Consumers
Buyer williams bought the williams residence for $259,500. The property was originally listed at $279,900 and was subsequently reduced to $265,000, before a successful sale was concluded. The selling price of $259,500 is best described as…
Market Price