Unit 1: Basic Real Estate Concepts

Land

Defined as the earth's surface extending downward to the center of the earth and upward to infinity, including permanent natural objects.

Real Estate

Defined as Land at, above, and below the Earth’s surface, plus all things permanently attached to it, whether natural or artificial.

Real Property

The interests, benefits, and rights that are automatically included in the ownership of land and real estate.

Bundle of Rights

Typically includes possession, control, enjoyment, exclusion, and disposition associated with real property ownership.

Highest and Best Use

The most profitable single use for a property that can change over time.

Immobility

One of the physical characteristics of real property; land cannot be moved.

Indestructibility

Land is considered durable and permanent.

Uniqueness

No two properties are alike; also called heterogeneity or non-homogeneity.

Law of Demand

If all other factors remain equal, the higher the price of a good, the less demand there will be for that good.

Law of Supply

The higher the price, the higher the quantity supplied due to increased revenue.

Equilibrium

Occurs when supply and demand are equal, leading to stable prices.

Supply and Demand Relationship in Real Estate

Prices drop as supply increases relative to demand (buyers' market) and rise as demand increases relative to supply (sellers' market).

SLIP

An acronym for the economic characteristics of real property: Scarcity, Location, Improvements, Permanence of investment.

Scarcity

Land of a particular quality or location may be very limited, even though the total supply of land is not in short supply globally.

Location (Situs)

Society’s preference for one area or site over another; considered the most important economic characteristic.

Permanence of Investment

Improvements are seen as fixed, long-term investments that cannot be easily transferred.

Real Estate Brokerage

The profession of bringing together people in a real estate transaction.

Appraisal

The process of estimating the value of real property.

Property Management

Managing real estate to protect the owner’s investment and maximize return.

Advantages of Real Estate Investment

Includes appreciation, tax advantages, and potential rental income.

Disadvantages of Real Estate Investment

Includes being a non-liquid asset, requiring specialized knowledge, and management responsibility.

National Association of REALTORS (NAR)

A trade organization for real estate professionals.

Types of Real Estate Uses

Residential, Commercial, Industrial, Agricultural, and Special-purpose categories.

Factors Affecting Supply

Includes labor force, construction costs, governmental controls, and financial policies.

Factors Affecting Demand

Includes population, demographics, employment and wage levels.

Business Cycles

Upward and downward fluctuations in business activity, typically consisting of four stages.

Governmental Anticyclical Efforts

Federal government policies aimed at preventing extreme fluctuations in the business cycle.