Exam 1 ReviewReal Estate Analysis

Chapters 1-4

College of BusinessAlfaisal

UNIVERSITY

Chapter 1

College of BusinessAlfaisal

UNIVERSITY

What is real estate?

LargestComponent of

Wealth

Half of Wealth is

Real Estate

PriceCostValue

1- Property

Anything you can own

2 - Bundle of Rights

What I can do with real property

Bundle of Rights

More rights = more value

PhysicalLocation

Legal

3 - Industrydevelopingmanaging

buying/sellingevaluating

brokeragemanagement

appraisal consultingsite selection - development

constructionfinancing

investmentgovernment

entrepreneursanalysts

managersregulators

Three Markets

User MarketCapital Market

Property Market

UserMarket

CapitalMarket

PropertyMarket

supply and demand

determinerental rateswhich

determines property cash

flow

savers and borrowers determine

required rates of return

NOI and required rates

of returndetermine

values

I RV

Capital Marketprovide money to

the real estate market

Capital Marketequitydebt

Equityincome

rentresale

Returnon your moneyof your money

Debtlenders

return of principal and interest

Property Marketinvestors

valuesrates

feasibility

Capitalization Rate

fundamentalmeasure

IRVI = IncomeR = RateV = Value

IRVI = R x VR = I ÷ VV = I ÷ R

Governmentzoning and land use

feesbuilding codesproperty taxes

Governmentlicensingfinancingsubsidy

infrastructure

What affects value?

all kinds of factors

risks and rateslocation risk

property type riskmanagement risk

other risk

new constructionif cost is less than

value

supply and demand

supply is longdemand can be

short

Volatile

good can turn bad and bad can turn

good

Real Estate Markets differ from all other

markets

heterogeneous

no two properties are exactly the

same

Location

internalexternal

immobility

cannot change locations

Marketsilliquid

localizedsegmented

private negotiation

Localized

the closer the more effect

Segmented

different typesdifferent prices

Negotiations and Costs

complexityprofessionals

time

Chapter 2

Legal Foundations to Value

Value is a function of rights

no rights = no value

Rightsgovernment protected claim

non-revocableenduring

Two kinds of Rights

PersonalProperty

Property

Exclusive PossessionEnjoy UseDispose

Two kinds of property Rights

PersonalReal

Realrights in land and permanent

structures

Personaleverything else

Surface

Buildable Air Space

Subsurface

Air Traffic Space

oil, gas, mines,water

Fixtures

personal property that has become

real property

Sale Contracts

must be clear what are personal

fixtures

Can separate interests

different people can hold

Possessory InterestsEstates

fee simple absolutetenancy at sufferance

Fee Simple Absolutecompletelimited by

government and prior owners

Fee Simple Conditional

fee simple as long as …

Life Estatefee simple

until someone dies

Remainder Estate

Leaseholdslimited in timeno disposition

no titletemporary right

Estatesowner

freeholdrenter

leasehold

Ownership Estates

with inheritance without inheritance

Ownership with inheritance

fee simple absolute

conditional with reverter interest

Ownership without inheritance

life estate

legal with remainder interest

Leasehold Estatestenancy for yearsperiodic tenancytenancy at will:

tenancy at sufferance

Tenant at Sufferance

a former tenant does not leave

Non-possessoryInterests

rights that do not include possession

Non-possessoryInterests

easementsrestrictive covenants

liens

Easementright to use land for a specific and limited

purpose

Easement Appurtenant

drivewayswater, sewer, power,

phone parking

Restrictive Covenants

clause in the deedlimit uses

Lien

security for an obligation

Lientaxes

mortgagemechanic’s

courtorder

Chapter 3

Conveying Real Property Interests

complex bundleland historydescription

Issues

conveyance document public recordEngland 1677

Deed

grantor and granteeconsiderationwords of conveyanceHabendum clauseexceptions and reservationsdescription of landacknowledgmentdelivery

Grantor and Grantee

giver and receiveronly grantor need be competent and exist

Consideration

unlike most contracts, not necessary

Words of Conveyance

“does hereby grant, bargain, sell, and convey

unto …”

Warranty Deedfree of other claims

Quitclaim Deedno guarantee

CovenantsGrantor insures

seizinencumbrances

enjoyment

Exceptions and Reservations

limitsgrantor may keep rights

Description of Landunambiguous

surveysubdivision

government lots

Acknowledgement

grantor signsnotary or witness

Deliverygrantee must give

to grantor

may use third party

Types of DeedsGeneral warranty deedSpecial warranty deed

Deed of bargain and saleQuitclaim deed

Judicial deed

Reverter Clauseso long as….

Clouded Title

a claim that limits the marketability

Title Insuranceprotect against claims against the property

seller usually provides

Involuntary Deedprobate

bankruptcydivorce

condemnationforeclosure

Involuntary Conveyance without a Deed

easement by prescription

adverse possession

Land Descriptions

metes and boundspoint of beginning

direction and distance

metes and bounds

complex bundleland historydescription

Summary

Chapter 4

Government Controls

RegulateTakeTax

Three Powers

Regulate

enjoying benefits and imposing costs on

someone else

Externalities

police power of government

Land Use Regulation

Building CodesZoning Regulations

Land Use Regulation

Take

government’s right to take property for

public use in exchange for just compensation

Eminent Domain

when government acts to take

property

Condemnation

Saudi Basic Law Article 18

The State shall guarantee private ownership and its sanctity. No-

one shall be deprived of his private property, unless in service of the public interest. In this case, a fair compensation shall be given

to him.

Tax

tax applied to the owner of real estatetypically based on

value

Property Tax

estimates value of property

Tax Assessor

regulatetaketax

Summary