1. The Student Handbook to T HE A PPRAISAL OF R EAL E STATE 1 The Money and Capital Markets Chapter 5

2. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 5 2 Relationship to Valuation Process Sales comparison approach Income capitalization approach Cost approach  Land values  Cost estimates  Depreciation

3. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 5 3 Risk Market risk Financial risk Capital market risk Inflation risk Environmental risk Legislative risk Management risk

4. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 5 4 Money Markets Fiscal policy Money market instruments Federal Reserve System  Reserve requirements  Federal discount rate  Federal Open Market Committee

5. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 5 5 Capital Markets Bonds Stocks Mortgages Deeds of trust Rate relationships

6. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 5 6 Sources of Capital for Real Estate Equity  Real estate investment trusts  Partnerships  Syndications  Joint ventures  Pension funds  Life insurance companies  International equity capital

7. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 5 7 Source of Capital for Real Estate, continued Debt  Savings and loan associations  Commercial banks  Life insurance companies  Junior mortgage originators  Secondary mortgage market Fannie Mae (formerly the Federal National Mortgage Assn.) Freddie Mac (formerly the Federal Home Loan Mortgage Corp.) Ginnie Mae (Government National Mortgage Assn.) Farmer Mac (Farmers Home Loan Mortgage Assn.) Private sector transactions

8. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 5 8 Securitization of real estate investment markets  Subprime lending crisis Debt and equity relationships  Investment yields  Leverage

9. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 5 9 Mortgage Exhibit 2

10. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 5 10 Mortgage Exhibit 2, continued

11. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 5 11 Problems Suggested solutions begin on page 417.