CHAPTER 15 SNAPSHOT REVIEW
Real Estate Markets and Analysis
Snapshot Review
PHYSICAL CHARACTERISTICS OF REAL ESTATE
Legal concepts of land and real estate ● land: surface, all natural things attached to it, subsurface, and air above the surface; unique aspects: immobile, indestructible, heterogeneous
●real estate: land plus all permanently attached man-made structures, called improvements
Unique physical features of land ● immobility and location: location is fixed is a major factor in use and valuation
● indestructibility: considered permanent, therefore long-term as investment; does not depreciate
● heterogeneity: no two parcels alike
ECONOMIC CHARACTERISTICS OF REAL ESTATE
Real estate as an economic product
● governed by supply, demand, price, costs, value components, government influence
●inherent value; unique appeal; immovable supply; illiquid; slow response to cycles; decentralized market
Relationship between supply, demand, price ● if supply increases relative to demand, price decreases; if demand increases relative to supply, price increases
Supply factors ● supply: property available for sale or lease; measured in dwelling units, square feet, acres; influenced by costs, finance, returns, government regulation
Demand factors ● demand: property buyers and tenants wish to acquire; measured in households, square feet, acres; influences: residential—employment, quality, amenities, price convenience; retail-trade area, sales, competition, site access, visibility; growth patterns; office-efficiency, costs, functionality; industrial– functionality, labor, regulatory compliance, access to labor, supplies, distribution channels
●base employment, total employment, population determine overall demand
●if employment and population increase, demand and prices increase; if they decrease, the opposite occurs
Market influences on supply and demand ● local economic factors; national economic trends in money supply, inflation; government regulation at all levels
Interpreting market Indicators ● supply-demand indicators are price, vacancy, and absorption; vacancy is existing, unoccupied supply; absorption is the “filling up” of vacancy
●real estate supply-demand cycle: undersupply > accelerated construction adds supply > equilibrium > construction adds more supply > oversupply > construction stops > equilibrium > demand absorbs supply
