Real estate midterm updated

What are the three primary real estate markets?

Space (user) market, capital market, and property market.

What does the space market determine?

Rents and occupancy levels based on supply and demand for physical space.

What does the capital market determine in real estate?

Required returns, interest rates, and the availability of investment funds.

What does the property market determine?

Property prices and capitalization rates that connect income to investor expectations.

Why is the space market considered local and segmented?

Because supply and demand differ by location and property type, making each market unique.

Why is real estate considered an illiquid asset?

It cannot be quickly sold or converted to cash without large transaction costs.

What distinguishes tangible from intangible property?

Tangible property is physical (land, buildings); intangible is non-physical (leases, stocks, patents).

What are the four government powers affecting real estate?

Taxation, eminent domain, police power, and escheat.

What is the bundle of rights in real estate?

The rights of possession, use, exclusion, and disposition.

What is disposition in real estate?

The right to transfer, sell, lease, or otherwise convey ownership of property.

What are the main types of estates in land?

Freehold estates (ownership) and leasehold estates (possession for a set time).

What is a fee simple absolute estate?

The most complete ownership interest, containing all possible rights.

What is a life estate?

An ownership interest lasting for the lifetime of a specified individual.

What happens to a life estate when the life tenant dies?

It terminates and passes to the remainderman or reverts to the grantor.

What is a leasehold estate?

A right to use and occupy property for a specified period without ownership.

What are nonpossessory interests in land?

Easements, restrictive covenants, and liens.

What is an easement?

A right to use another person’s land for a specific, limited purpose.

What is a restrictive covenant?

A private restriction that limits how land can be used.

What is a lien?

A legal claim against property used as security for a debt.

What is an encumbrance?

Any claim or liability attached to property that limits ownership rights.

What are the three main legal description methods?

Metes and bounds, lot and block, and rectangular (government) survey.

Why is a legal description important?

It uniquely identifies the property being transferred in a deed.

What is a deed?

A written document that transfers ownership of real property.

What is the difference between a general warranty deed and a quitclaim deed?

A general warranty deed provides full title protection; a quitclaim deed provides no guarantees.

What are covenants in a deed?

Legally binding promises by the grantor about the quality of title.

What is title insurance?

Insurance protecting owners and lenders from losses due to title defects.

What is a chain of title?

The recorded history of property ownership and conveyances.

What is constructive notice?

Publicly recorded documents are binding even if a person is unaware of them.

What is marketable title?

A title free from reasonable doubt about ownership.

What is the purpose of recording a deed?

To give public notice of ownership and establish legal priority.

Why do governments regulate land use?

To correct market failures, reduce externalities, and promote public welfare.

What are externalities in real estate?

Uncompensated effects of one property’s use on another, such as noise or traffic.

What is zoning?

Government regulation that dictates land use, density, height, and setbacks.

What is a variance in zoning?

A special permission to deviate from zoning rules due to unique hardship.

What is a nonconforming use?

A land use that was legal before new zoning rules but is now inconsistent with current regulations.

What is a comprehensive or general plan?

A long-term vision for community growth, land use, and infrastructure.

What does a building code regulate?

Construction quality, safety, and materials for structures.

What is eminent domain?

The government’s power to take private land for public use with just compensation.

What is police power in real estate?

The government’s authority to regulate land use for public health, safety, and welfare.

What is escheat?

The state’s right to claim ownership when someone dies without heirs.

Why are property taxes important to local governments?

They provide revenue for public services and influence property values.

What is the economic base of a city?

Industries that export goods or services and bring income into the local economy.

What is the multiplier effect in urban economics?

Each basic job creates additional local jobs and income.

What are agglomeration economies?

Cost savings and productivity gains when similar firms cluster geographically.

What is market segmentation in real estate?

Dividing potential users into specific groups based on property needs.

What is the story approach to market analysis?

Building a logical narrative that connects data and assumptions about property demand.

What is the sales comparison approach to valuation?

Appraising property based on recent sales of similar properties with adjustments.

What is the cost approach to valuation?

Value equals land value plus replacement cost minus depreciation.

What is the income approach to valuation?

Property value equals the present value of future income.

What is net operating income (NOI)?

Income from property operations after deducting operating expenses and capital expenditures.

What is a capitalization rate (cap rate)?

The return rate used to convert income into value (Value = NOI ÷ Cap Rate).

What happens to property value when the cap rate increases?

Value decreases because investors require a higher return.

What are operating expenses?

Ongoing costs to operate and maintain a property, such as taxes, insurance, and maintenance.

What are capital expenditures (CapEx)?

Large, infrequent costs that extend the property’s life, such as roof replacement.

What is the difference between market value and investment value?

Market value is what typical buyers would pay; investment value is unique to a specific investor.

What is highest and best use?

The legal, physically possible, and financially feasible use that produces the highest value.

What are the two parts of a mortgage loan?

The note (borrower’s promise to pay) and the mortgage or deed of trust (collateral).

What is the purpose of a promissory note?

It is the borrower’s written promise to repay the loan.

What is a deed of trust?

A security instrument transferring title to a trustee until the loan is paid off.

What does foreclosure do?

It terminates ownership and sells the property to satisfy unpaid debt.

What is a deficiency judgment?

A court order requiring the borrower to pay any remaining loan balance after foreclosure.

What is a conventional mortgage?

A home loan not insured or guaranteed by a government agency.

What is a conforming loan?

A conventional loan that meets Fannie Mae and Freddie Mac underwriting standards.

What is a nonconforming loan?

A loan that doesn’t meet standard guidelines or exceeds size limits.

What is a fixed-rate mortgage (FRM)?

A loan with an interest rate and payments that remain constant.

What is an adjustable-rate mortgage (ARM)?

A loan where the interest rate changes periodically based on a financial index.

What is private mortgage insurance (PMI)?

Insurance protecting the lender if the borrower’s down payment is less than 20%.

What is an FHA loan?

A government-insured loan designed to help low-income or first-time buyers.

What is a VA loan?

A government-guaranteed loan for eligible veterans, often allowing no down payment.

What is the secondary mortgage market?

The market where lenders sell existing loans to investors.

What are mortgage-backed securities (MBS)?

Pools of home loans that provide income to investors.

Why is securitization important in real estate?

It provides liquidity and links real estate to the broader capital markets.

What is a lease?

A contract granting the right to use property for rent over a set period.

What is the difference between a gross lease and a net lease?

In a gross lease, the landlord pays expenses; in a net lease, the tenant pays some or all.

What is a percentage lease?

A lease where rent includes a base amount plus a percentage of tenant sales.

What is an indexed lease?

A lease with rent adjustments tied to an inflation index.

Why are lease terms important to property value?

They determine income predictability and cash flow stability.

What is a condominium?

Ownership of a unit in fee simple plus shared ownership of common areas as tenants in common.

What is a cooperative (co-op)?

Ownership of shares in a corporation that owns the property, giving the right to occupy a unit.

What is tenancy in common (TIC)?

Ownership by two or more people without survivorship; shares may be unequal.

What is joint tenancy?

Co-ownership with equal shares and right of survivorship.

What is tenancy by the entirety?

Co-ownership for married couples with survivorship and creditor protection.

What are dower and curtesy rights?

Common law life estates giving a surviving spouse one-third of the deceased spouse’s property.

What replaced dower and curtesy in most states?

Elective share laws granting a surviving spouse a portion of the estate.

What is the Peiser development process?

Find site, control land, test feasibility, obtain entitlements, finance, build, lease or sell, and exit.

What are common prepayment restrictions in commercial loans?

Lockouts, yield maintenance, and defeasance.

What is a mezzanine loan?

A subordinate loan secured by equity rather than property.

What is a balloon mortgage?

A loan with partial amortization and a large final payment at maturity.

What is the difference between recourse and nonrecourse loans?

Recourse allows lender to pursue personal assets; nonrecourse limits recovery to the property.

Why are commercial loans often nonrecourse?

Because repayment depends mainly on the property’s income, not borrower credit.

What is underwriting in real estate finance?

The process of evaluating borrower risk, property income, and loan terms before approval.

Why are commercial loan rates priced as spreads over Treasuries?

To reflect risk premiums above the risk-free rate.

What is a comprehensive plan in urban planning?

A long-term policy guiding land use, housing, and public facilities.

What is a planned unit development (PUD)?

A mixed-use project with flexible zoning and coordinated planning.

Why is access important in site selection?

Accessibility to jobs, transport, and amenities strongly influences demand and value.

What are linkages in real estate?

The connections between a property and key destinations such as workplaces and schools.

What is market research in development?

Analyzing supply, demand, and competition to determine project feasibility.

What are industry economies of scale?

Cost advantages from a large concentration of similar firms in one area.

What does location theory explain in real estate?

How access and competition determine land use and rent patterns.

What happens to property values when interest rates rise?

Values tend to fall because investors demand higher returns.