Exam 1

externalities

While most real property in the United States is privately owned, government regulations limit private property use and therefore play an important role in the determination of property value. Proponents of government intervention argue that regulation is needed to address the unintended and unaccounted for consequences of one land user upon others, more commonly referred to as

Public assistance facilities such as homeless shelters.

Externalities can play an important role in determining a property's price, either by adding value through positive externalities or by diminishing value through negative externalities. Which of the following is most likely to be considered a negative externality?

urban sprawl

Development taking place in rural areas well beyond the urban fringe is commonly referred to as

Spaceship earth

It was not until the late 1960's that land use controls moved to the forefront of public interest, as the belief that the environment was an endless and costless resource was replaced with the notion that the world was a closed system with limited space, air, water, and other resources. Environmentalists coined which of the following terms to refer to this new point of view?

Incomplete information

After a structure is built, it is impractical for even a building expert to fully assess the quality of the construction and the safety hazards it may harbor. This is an example of which of the following problems that plagues private real estate markets?

concurrency requirement

Growth management laws at the state level require local jurisdictions to plan for and meet certain requirements. One such requirement prohibits local development unless adequate infrastructure, schools, police/fire protection, and social services have been put in place first. This requirement is referred to as the

new urbanism

A contemporary planning movement that explicitly advocates a traditional grid pattern of development designed to give pedestrian life priority over motor vehicles is commonly referred to as

Building Codes

Which of the following tools of public land use control represents the earliest method of police power to regulate land use?

nonconforming uses

When a zoning ordinance is revised, some existing land uses then fall outside the new zoning classification. These land uses are referred to as

variance

When land use controls impose exceptional hardship and loss of value, a relief mechanism must be provided. This relief is referred to as a

The condition is common to other parcels of land in the vicinity

In order for the board of adjustment to approve a variance, all of the following conditions must be met EXCEPT

Performance standards

A traditional zoning ordinance includes all of the following EXCEPT

Comprehensive Environmental Response Compensation and Liability Act

State and federal control of land uses has increased greatly over the past 40 years due in part to an increased awareness of environmental hazards. Which of the following federal environmental control laws was responsible for establishing the "Superfund" to finance emergency responses and cleanups of abandoned and unregulated waste dumps?

impact fees

Negative externalities can diminish a property's value by imposing costs on the community at large. In order to offset this detrimental impact, economists advocate "internalizing" these externalities by implementing

Asbestos

A major problem in buildings constructed prior to the early 1970's, which of the following environmental hazards commonly associated with insulation has been the focus of costly

eminent domain

The right of government to acquire private property, without the owner's consent, for public use in exchange for just compensation is referred to as

The value of the property is determined solely by its current use.

All of the following statements are true in describing the determination of just compensation EXCEPT

ad valorem taxes

Real estate taxes represent the largest single source of revenue for a large portion of local governments. Most property taxes are applied in relation to the value of the property, or in other words, they are

extraterritorial jurisdiction.

A developer plans to place a subdivision slightly outside the city limits in an area that is rapidly developing. However, the city claims to have the right to control urban development even in the proposed area. The right the city is attempting to invoke is referred to as

They are considered ad valorem taxes.

Special assessments are levied to pay for specific improvements that benefit a particular group of properties. All of the following characteristics of special assessments are true EXCEPT

regressive

One of the main criticisms of property taxes is that the property tax of lower income households is higher than that of higher income households, as a percentage of their respective incomes. In other words, taxes are criticized for being

homestead exemption

In the state of Florida, for example, homeowners may qualify for a tax exemption in which up to $50,000 will be deducted from the assessed value of the property before taxes are calculated as long as the property owner occupies a home as the family's principal residence and has claimed residency within the state. This exemption is better known as the

and moderate

Zoning ordinances that tend to exclude lower income groups by large lot size, or that do not adequately provide low

traditional residential planning

A public planning movement that explicitly advocates a cul-de-sac hierarchy of development, an automobile oriented society, and separated land use is more commonly referred to as

Condemnation

Eminent domain is the right of government to acquire private land, without the owner's consent, for public use, with due process and just compensation. The legal procedure for exercising the right of eminent domain is referred to as

Planned unit development

Traditional zoning regulations are criticized for often being too rigid in forcing uniform types of development. One proposed solution to this issue allows traditional zoning requirements to vary in exchange for an enhancement to the community, such as the construction of a park. This is more commonly referred to as a

Able to use eminent domain to acquire property for private development if it serves public purpose even if the current land use is not blighted.

In the history of eminent domain, the Kelo v. New London, Connecticut decision of the U.S. Supreme Court in 2005 affirmed the possibility of a community being

locational monopoly

In efficient financial markets, unregulated competitive bidding should bring about the most productive use of an asset and the price paid for that asset should reflect fair value based on its usefulness. In real estate, this is not always the case. For example, there is no substitute for certain pieces of land which gives the owner a bargaining advantage in determining the value of the land. This feature of real estate markets is commonly referred to as

a discount from the face value of the property taxes due

Nearly half of states in the U.S. use the sale of tax lien certificates to manage defaulted property taxes. The certificates are auctioned to the public at

property tax income: $50 million, Total assessed value of all properties: $2 billion, Total exemptions: $550 million.

Given the following information, compute the property tax rate for the community in percentage terms. Total budget expenditures: $108 million, Total non

65 mills

Tax rates are usually stated in mills. Assuming the tax rate in percentage terms is 6.5%, convert this rate to mills.

1.65%

Given the following information, compute the effective tax rate for the particular piece of property in percentage terms. Market value of property: $325,000, Assessed value of property: $250,000, Exemptions: $50,000, Taxes paid: $5,363.

$375,000

Given the following information, compute the taxable value for the particular piece of property in dollar terms. Market value of property: $500,000, Assessed value of property: 85 % of the market value of the property, Exemptions: $50,000, Taxes paid: $8,250.

$4,685.10

Given the following information, calculate the total annual tax liability of the homeowner. Market value of property: $350,000, Assessed value of property: 40 % of the market value, Exemptions: $2,000, Millage Rate: 33.95 mills.

16.73 mills

Given the following information, calculate the effective tax rate expressed in mills. Market value of property: $280,000, Assessed value of property: 50 % of the market value, Exemptions: $2,000, Annual tax liability: $4,685.

$1,925.10

Given the following information, calculate the total annual tax liability of the homeowner. Market value of property: $350,000, Assessed value of property: 40 % of the market value, Exemptions: $2,000, State Millage Rate: 0.25 mills, County Millage Rate: 13.70 mills.

Property

Refers to anything that can be owned or possessed. Property can be a tangible or an intangible asset.

Tangible Assets

Are physical things, such as automobiles, clothing, land, or buildings.

Intangible Assets

Are nonphysical things and include contractual rights (e.g., mortgage and lease agreements), financial claims (e.g., stocks and bonds), interests, patents, or trademarks.

Real Estate

(used in 3 ways) Its most common use is to identify the tangible assets of land and buildings. It is used to denote the "bund;e" of rights associated with the ownership and use of the physical assets. May be used when referring to the industry or business activities related to the acquisition, operation, and disposition of the physical assets.

Real Estate (viewed purely as a tangible asset)

Can be defined as the land and its permanent improvements.

Improvements ON the Land

Include any fixed structures such as buildings, fences, walls, and decks.

Improvements TO the Land

Include the components necessary to make the land suitable for building construction or other uses. These improvements are often referred to as infrastructure and consist of the streets, walkways, storm water drainage systems, and other systems such as water, sewer, electric and telephone utilities that may be required for land use.

In practice the term \___ may include more than simply the earth; it may also include the improvements TO the land. For example, the term \____ is often used to refer to a building site, or lot, and includes the infrastructure but not any structures.

Land

Raw Land

Commonly used to refer to a larger area that does not include any improvements.

Personal Property

Refers to things that are movable and not permanently affixed to the land. For example, a motor home is personal property, while a custom "site

Real Property

Property that is attached directly to land, as well as the land itself. Includes buildings and other structures, but also rights and interests. Can be either rental or residential. Any structures or improvements that are attached to the land must not be movable in order to be considered real property. Natural resources such as oil, gas and timber also qualify, because they are considered to be part of the land.

Acre

Is defined as 43,560 square feet, or about 209 feet square.

User Markets

"The real world". Characterized by competition among users for physical locations and space. The primary participants in user market are the potential occupants, both owner occupants and tenants, or renters.

Capital Markets

"The financial world". Serve to allocate financial resources among households and firms requiring funds. Participants in the capital markets 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

Determine the required property

Capitalization Rate

The ratio of a property's annual net income to its value, is a fundamental pricing metric in commercial real estate markets. The capitalization rate, often just called the cap rate, is the ratio of Net Operating Income (NOI) to property asset value. So, for example, if a property was listed for $1,000,000 and generated an NOI of $100,000, then the cap rate would be $100,000/$1,000,000, or 10%.

Heterogeneous [Products]

Real estate tends to be heterogeneous, meaning that each property has unique features. Age, building design, and especially location combine to give each property distinctive characteristics. Real estate markets tend to be highly segmented due to the heterogeneous nature of the products.

Investment

grade Properties, or Institutional

fences

When viewed as a tangible asset, real estate can be defined as the land and its permanent improvements. Improvements on the land include

Mortgage

Real estate is property, which can be either a tangible or an intangible asset. Which of the following would be considered an intangible asset?

"Raw" land

If we desire to classify land by its use, land that does not include any improvements to the land would be categorized as

less than one acre

The size of a single family residential lot is typically

housing

As of 2011, the single largest asset category in the net worth portfolios of households is

Capital market

Real estate values derive from the interaction of three different sectors in the economy. Which of the following sectors serves to allocate financial resources among households and firms requiring funds?

User Market

The demand for real estate derives from the need that market participants (e.g., owner occupants, tenants, renters) have for shelter and convenient access to other locations. This competition for physical location and space occurs in the

discounting

The expected stream of rental income is capitalized into value by converting expected future cash flows into present value through a process called

real property

Capital markets can be divided into four main categories: private equity, public equity, private debt, and public debt. An example of a real estate asset that trades in the private equity market is

Local government

Primarily through land use controls and property tax policy, which of the following branches of government has the largest influence on real estate values?

the current level of rental rates for each submarket and property

Competition for the currently available supply of locations and space coupled with the existing supply of leasable space, determines

heterogeneous

Each property has unique features, whether it is its age, the building design of its structures, or its location. As such, real estate markets consist of assets that are considered

investment

Consistently the investment target of pension funds, publicly traded real estate companies, and real estate funds, large commercial properties valued well over $10 million are often referred to as

two-thirds

By the third quarter of 2011, U.S. households had accumulated $6.2 trillion in housing equity, which represents about 11 percent of their net worth. What proportion of U.S. households own their home?

income tax policy

The national government can have a significant impact on the value of real estate through

capital market

The required rate of return that an individual demands on a real estate investment is determined in the

low transaction costs

Investors in real estate can choose to hold properties directly in the private market or indirectly through publicly traded real estate securities. The market for buying selling, and leasing real estate can be characterized by all of the following EXCEPT

Location attributes

Especially in terms of retail properties, which of the following attributes is considered the most likely to result in drastic value differences between otherwise similar properties?

The collection of rent and price appreciation

Capital markets can be divided into two broad categories: equity interests and debt interests. Equity investors in real estate expect to earn a return on their investment through

Capitalization rate

Considered a fundamental pricing metric in commercial real estate markets, the ratio of a property's annual net income to its market value is more commonly referred to as a(n)

State government

Helping to constrain entry into real estate related occupations, which of the following branches of government is directly involved in establishing rules and regulations for the licensing of professionals in the field of real estate?

increase if current property values are greater than the cost of construction

A primary determinant of the feasibility of new construction is the relationship between the current level of property prices and the cost of new construction. We would expect the supply of properties to

Sewer system

Real estate is defined as land and its permanent improvements. Which of the following is an example of an improvement to the land?

Highly segmented markets

Equity investors can choose to participate indirectly in real estate markets by purchasing shares in publicly traded real estate companies. In doing so, investors benefit from all of the following EXCEPT

A couple searching for a single

Real estate markets tend to be highly segmented due to the heterogeneous nature of the products. Which of the following examples depicts this issue of market segmentation?