Midterm #1 Notes
Characteristics of Real Estate
Real estate has many distinctive characteristics
Both a consumption good and investment good
o Consumption good: provides service
o Investment good: single largest investment for many
o House prices generally go up over time
Fixed Location: no two homes share a single location
o Location – Specific goods/services – access to jobs,
school quality, neighborhood, etc.
o Implications: Real estate markets segmented and
Heterogeneity: No two units are exactly the same.
o Many reasons: Physical characteristics
o Implications: High search costs/brokerage fees are
Durable: Long life of real estate
o Price of a building decreases over time to a certain
point, and then begins to increase due to historical
Large Economic Unit
o infrequent purchase; Access to capital markets and
mortgages are usually required.
o Implication: mortgage market condition influence
Extensive Government Regulations:
o E.g. zoning law, building codes
o Implications: Government can affect real estate supply
Types of Real Estate
Classification of Real Estate by Use
Residential is defined by zoning bylaws
Definition of residential dwelling – must contain self contained
set of rooms.
Must be used as residential premises, and contain
Must have a means of egress to the outside of the building
There are three sub-categories depending on density
o Low density
Single family, semi-detached
o Medium Density Row housing, Town houses, Apartment (Low rise
1-4 stories, mid rise 5-9 stories
o High Density
Class A: Excellent location, high quality tenants, competitive
rents, professional management.
Class B: Good location and management; good tenants; very
little functional obsolescence (little need for upkeep)
Class C: 15-25 years old but maintains steady occupancy.
Enclosed Malls: A shopping centre enclosed within a large
structure, having numerous stores/entertainment
Combine Office, retail and sometimes residential
Popular in core business areas. Two considerations, one long
commuting and convenience
1-5 Star Hotels
Motel: Located along highways, have orientation to outside
(doors usually face interior hallways, but motels have
Bed and Breakfast: Short Term lodging
Store goods and materials
Plants or Factories: Often custom built to meet demand or
particular process or production line.
Large variations in building materials and structures. Hard to
convert to another factory.
Property Types classified by Tenure
You own the real estate
A form of housing tenure where you own a unit and share the
common area with other owners.
Self governing: have