Finance 266 Principles of Real Estate (Missouri State University) Exam 1 (Chapters 1-2) Questions and Answers

Finance 266 Principles of Real Estate (Missouri State University) Exam 1 (Chapters 1-2) Questions and Answers Tangible Property - Ans:-Physical assets that can be owned. It can be real or personal property Intangible Property - Ans:-Non-physical assets such as stocks, bonds, mortgages, and leases Real Estate - Ans:-Defined as property consisting of land or buildings. This is the single largest component of wealth in our society. Changes in the value of this can dramatically affect the wealth of businesses and their capacity to grow. As well as excluding primary residences, this has been estimated to represent approx. 25 percent of the worlds total economic wealth Property - Ans:-This refers to anything that can be owned or possessed. Tangible Assets - Ans:-These are physical things, such as automobiles, clothing, land, or buildings. Intangible Assets - Ans:-These are nonphysical things and include contractual rights (e.g., mortgage and lease agreements), financial claims (e.g., stocks and bonds), interests, patents, or trademarks ©GRACEAMELIA 2024/2025 ACADEMIC YEAR. ALL RIGHTS RESERVED FIRST PUBLISH OCTOBER 2024 Page 2/12 Improvements on the land - Ans:-Includes any fixed structures such as buildings, fences, walls, and decks. Improvements to the land - Ans:-Includes the components necessary to make the land suitable for building construction or other uses. Land - Ans:-Includes more than simply the earth; it may also include the improvements to this. Raw Land - Ans:-When this is in its natural state, it has no manmade improvements to it. A Bundle of Rights - Ans:-Although real estate is a tangible asset, it can also be viewed as this: Intangible rights associated with the ownership and use of the site and improvements. The value of this is a function of the property's physical, locational, and legal characteristics Real Estate Professions - Ans:-This includes: real estate brokerage, leasing, property management services, appraisal and consulting services, site selection, acquisition, and property development, construction, mortgage finance and securitization, corporate and institutional real estate investment and government activities such as planning, land use regulation, environmental protection, and property taxation. Real Estate and the Economy - Ans:-Real estate typically generates over 25 percent of the US gross domestic product (GDP), creates jobs for nearly 9 million Americans, and is the source of nearly 70 percent of local government revenues. The total contribution of the housing sector alone averages 17 to 18 percent of GDP ©GRACEAMELIA 2024/2025 ACADEMIC YEAR. ALL RIGHTS RESERVED FIRST PUBLISH OCTOBER 2024 Page 3/12 United States Land Use - Ans:-This represents about 6 percent of the earths land area, or approx. 2.3 billion acres (3.5 million square miles) Acre - Ans:-Defined as 43,560 square feet; there are 640 ____ in one square mile. Real Estate Markets and Principles - Ans:-The market's forces of demand and supply interact within the economy to determine the price at which goods, capital, and services are exchanged and to whom they are allocated. Three Sectors of Real Estate - Ans:-This includes: local user markets (the "real world"), capital markets (the "financial world"), and property markets. User Markets - Ans:-This is characterized by competition among users for physical locations and space. The primary participants in this include: potential occupants, both owner occupants and tenants, or renters. About 2/3 's of US households own their home, and many businesses own their real estate, while most commercial real estate located in the central business districts of US cities is leased Capital Markets - Ans:-This serves to allocate financial resources among households and firms requiring funds. Participants in this invest in stocks, bonds, mutual funds, private business enterprises, mortgage contracts, real estate, and other opportunities with the expectation of receiving a financial return on their investment Property Markets - Ans:-This determines the required property-specific investment returns, property values, capitalization rates, and construction feasibility. ©GRACEAMELIA 2024/2025 ACADEMIC YEAR. ALL RIGHTS RESERVED FIRST PUBLISH OCTOBER 2024 Page 4/12 Capitalization Rate - Ans:-Also known as the ratio of a property's annual net income from rental operations to its value, this is a fundamental pricing metric in commercial real estate markets Local Government - Ans:-This has the largest influence on real estate State Government - Ans:-This has the least influence on real estate values, but it is still important National Government - Ans:-This influences real estate in many ways. Income tax policy can greatly affect the value of real estate and therefore the incentive to invest in it. The Federal Reserve System and the Federal Deposit Insurance Corporation (FDIC) all have profound effects on the operation of the real estate capital markets The Roles of Local Property (Asset) Markets - Ans:-They allocate available property investments among investors and they determine the pace of new construction Heterogeneous Products - Ans:-Real estate tends to be this, meaning that each property has unique features. An example of this is gasoline. Although it is possible to purchase different grades of gasoline, a gallon of gas received from a particular pump cannot be distinguished from the next gallon Immobile Products - Ans:-Real estate is this. Although it is sometimes physically possible to move a building from one location to the next, this is generally not financially feasible. Access - Ans:-This is another term for location. ©GRACEAMELIA 2024/2025 ACADEMIC YEAR. ALL RIGHTS RESERVED FIRST PUBLISH OCTOBER 2024 Page 5/12 Investment-Grade Properties - Ans:-This is also known as Institutional-Grade Real Estate. If it attracts the attention of large institutional buyers, such as insurance companies, private equity firms, or real estate investment trusts, than it is this term. The Fundamental Distinctions in understanding Real Estate - Ans:-These are: What do we mean by rights? What is the difference between personal rights and property rights? and What is the difference between personal property and real property? Rights - Ans:-These are claims or demands that our government is obligated to enforce and are non- revocable Personal Rights - Ans:-Also known as personal freedoms, these derive primarily from the Bill of Rights and other amendments and clauses of the US Constitution Property Rights - Ans:-These are rights that are both tangible and intangible, derive f