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Administrative Studies
ADMS 3810
John Glen

Lecture 1Notes 142012 45400 PM The Analytical Framework PART 1 Real Estate Industry OverViewA The Real Estate MarketplaceConsists of a large number of a separate markets differentiated by o Geographical locationNeighborhoodCity and regionNational or international o Type of real estateSinglefamily homesOffice buildingsIndustrial propertiesSince each location is unique and cannot be duplicated it can be said that infinite number of markets exitsAnalysis of the real estate o Estimates the net operating income o Deducts claims by lenders government and others that have priority over the equity claim o Estimates the residual cash flow that belongs to the equity ownerB Key DefinitionsProperty o Property refers to things and objects capable of ownership o Things and objects that can be used controlled or disposed of by an owner Real estate o Real property and real estate which is treated as synonymous consists of physical land plus structures and other improvements that are permanently attached o Real property refers to the legal rights interests and benefits inherent in the ownership of real estate o One owns not land as such but a bunchle of rights to use and dispose of land and its improvements subject to various restrictions Concept of permanent attachment o The French word for real estate is immeubles or literally immovable o Personal property is moveable whereas real estate is not Bundle of Rights o Society defines the bundle of rights and can change the definitions from time to time For example zoning land for residential use eliminates the landowners right to put a factory on the site The residual claimproperty ownershipconers the right to receive the cash flow from peorty subject to any prior claimsThe Bundle of Rights associated with real estate are o Right ofPossessionControlEnjoymentDispositionExclusionAnother right recognized by Michael Brooks is destroying or injuring propertyC Features of the real estate assetPhysical o ImmobilityReal estate is fixed in location and cannot be movedConsequences of real estates immobilityMarkets are primarily localMay be local or international depending on the use and property rights involvedExample Interests in a singlefamily houses are generally traded locally o Unique location heterogeneity Because of land being immobile it follows that every single parcel of real estate has a location that cannot be duplicatedIt is heterogeneous or one o f a kindHeterogeneity impliesDo not have a perfectly competitive market situation that would provide an efficient allocation of resourcesLack of information by buyers and sellersConsequently this market requires professionals such as brokers and appraisers to provide the information required to make the market functionExternalities play an important role in determining real estate vale o IndestructibilityLand component both as a physical asset and as the object of legal interests is viewed as indestructibleMay be mined eroded flooded or desolated nevertheless the designated location on the earths surface remains foreverEconomic o ScarcityDue to every location being unique only certain parcels of land may satisfy the requirements of a particular project or investment Although no absolute shortage of land exists land for a particular purpose at a particular time and place may be quite scarceo Long economic lifeAlthough improvements and additions to land are not indestructible in the sense that land itself is they do normally have long useful livesBuildings are usually torn down and rarely fall down because a new use will make the site more productive and hence more valuable o ModificationConcept of modification focuses on the impact of development on the total value of a parcelreflecting the fact that existing or potential future development can have a significant impact on value
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