1. 5 The Real Estate Marketplace
Efficient market includes
Products readily exchangeable for other products of same kind
Ample supply of knowledgeable buyers and sellers
Little or no government regulation influencing value
Relatively stable prices
Easy product supply and transfer of title

2. Characteristics of Real Estate Markets
Every parcel of real estate is unique
Number of buyers and sellers varies
Frequently, unsophisticated buyers and sellers
Real estate is intensely regulated
Real estate is immobile

3. Market Analysis Demography is study of population statistics
Segmentation
further defines overall market
Forecasts
predict future market performance

4. Market Analysis Absorption analysis Feasibility study
is study of number of property units that can be sold or leased over a given period of time in a defined location
Feasibility study
predicts likely success of proposed real estate development

5. Real Estate Finance
Cost of credit is the interest paid on loan used to purchase real estate
Credit is “tight” when there is not enough financing for all potential buyers
Sources of capital—money market and capital market
Investments come from debt investors and equity investors

6. Mortgage Terms and Concepts
Security instrument hypothecates real property to cover lender’s loss if borrower fails to repay debt
Mortgage
Given by mortgagor (property owner)
Creates lien in favor of mortgagee (lender)
If default, enforced by judicial foreclosure (court action) or through power of sale included in mortgage

7. Mortgage Terms and Concepts
Deed of trust
Transfers title from trustor (property owner)
To trustee (neutral third party)
To be held on behalf of beneficiary (lender)
If default, enforced by trustee’s sale
If repaid, trustee’s deed returns title to owner

8. Types of Mortgages
Fully amortized, fixed-rate mortgage with regular payment of principal and interest
Graduated payment mortgage with lower monthly payments in early years of loan
Reverse annuity mortgage, which provides payment(s) to a homeowner that are repaid when the homeowner leaves the home
Shared appreciation mortgage offers lower interest rate in exchange for some equity

9. Elements That Create Value
Demand—financially qualified buyer
Utility—property serves useful purpose
Scarcity—short supply relative to demand
Transferability—title moved readily

10. Types of Value assessed value cash value rental value market value
improved value
retrospective value
mortgage value
insurable value
depreciated value
capitalized value
appraised value
replacement value
book value
exchange value
leased fee value
inheritance tax value
liquidation value
leasehold value
value in use
salvage value
investment value

11. Market Value
Fannie Mae defines market value as the most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably, and assuming the price is not affected by undue stimulus

12. Arm’s-Length Transaction
Buyer and seller are typically motivated
Both parties are well informed or well advised
The property has been on the market for a reasonable time
Payment is made in terms of cash in U.S. dollars or comparable financing
Price represents normal consideration with no special financing concessions

13. Types of Value Sales price—what a property sells for
Cost—amount paid for a good or service
Investment value—value of property to a particular investor, considering cash flow
Value in use—based on a particular use
Assessed value—used by taxing authority
Insurable value—amount for which property may be insured

14. Influences on Real Estate Value
Physical and environmental
Economic
Government and legal
Social

15. Basic Value Principles
Anticipation
Balance
Change
Competition
Conformity, Progression, Regression
Contribution
Externalities

16. Basic Value Principles
8. Four Factors of Production—Capital, labor, land, management 9. Life Cycle of Property—Growth, equilibrium, decline, revitalization 10. Highest and Best Use 11. Law of Increasing Returns 12. Law of Decreasing Returns

17. Basic Value Principles
13. Opportunity Cost 14. Substitution 15. Supply and Demand 16. Surplus Productivity