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Presentations text content in REAL ESTATE ECONOMICS AND VALUE
Slide1
REAL ESTATE ECONOMICS AND VALUE
Chapter
5
Slide2
CHAPTER TERMS AND CONCEPTS
Agents of productionAmenitiesDemandDemographyEconomic forcesFiscal policyGross domestic product (GDP)Monetary policyMonetary theory
Over-improvementPhysical forcesPolitical forcesPrinciple of anticipationPrinciple of changePrinciple of competitionPrinciple of conformityPrinciple of increasing anddecreasing returns
2
Slide3
CHAPTER TERMS AND CONCEPTS
Principle of progression andprinciple of regressionPrinciple of substitutionPrinciple of supply and demandPrinciples of highest and best use and consistent usePrinciples of surplus productivity, balance, and contribution
Purchasing powerReal estate cycleScarcitySecondary marketSocial forcesSupplySurplus of productivityTransferabilityUtility
3
Slide4
LEARNING OUTCOMES
List the four basic elements of value.List and give examples of the broad forces that affect value.Define real estate cycles.Name the major supply and demand factors that cause economic changes affecting real estate.Describe the federal government’s role in the economy.Explain how the principles of value relate to the marketing and productivity of real estate.
4
Slide5
THE REAL ESTATE VALUE INFLUENCES
Real Estate has no Intrinsic ValueValue is Derived from Rights and Benefits that Come from:OwnershipPossession andUse
5
Slide6
FOUR ESSENTIALS OF VALUE
UtilityUsefulness; the ability to create a desire for possessionScarcityIn relatively short supply; a lack of abundanceDemandThe desire to possess plus the ability to buy; effective purchasing powerTransferabilityThe ability to change the owner or use; marketable title
DemographicsNeighborhood StabilityPopulationLife StylesAttitudes; BehaviorAttitudes; DevelopmentAttitudes; Public Education
9
Slide10
ECONOMIC FORCES
Income Levels
EmploymentWages and JobsMoney and CreditPrice LevelsPersonal SavingsGeneral Business ActivitySupply and Demand for HousingProduction of Goods and Services
10
Slide11
POLITICAL FORCES
Zoning and Land UseBuilding and SafetyEnvironmental LawsEndangered Species ActPolice, Fire, and HealthCrime PreventionPublic WorksFiscal PolicyMonetary PolicyGovernment Sponsored ProgramsGovernment Regulations
11
Slide12
HOW ECONOMIC TRENDS AFFECT REAL ESTATE
Economic Trends and the Business CycleReal Estate Supply FactorsReal Estate Demand FactorsFederal Government Activity
12
Slide13
ECONOMIC TRENDS AND THE BUSINESS CYCLE
An Economic Trend is a Pattern of ChangesCyclesBusiness cyclesReal Estate CyclesThe Cycle of ConstructionNew Home SalesVolume of Sales
13
Used by Permission of Alma Dizon:
www.riverside-real-estate.us
Slide14
REAL ESTATE SUPPLY FACTORS
Housing SupplyNew ConstructionSupply of Vacant Land
14
Slide15
REAL ESTATE DEMAND FACTORS
PopulationPurchasing Power
15
Slide16
FEDERAL GOVERNMENT ACTIVITY
Housing and Urban Development ProgramsFNMAFederal National Mortgage AssociationSecondary MarketFHAFederal Housing Administration
16
Figure 5.5:
Government
Housing Project
under
Construction
Slide17
FEDERAL GOVERNMENT PROGRAMS
Energy and the EnvironmentEPAEnvironmental Protection AgencyFEMAFlood MapsGovernmental Banking and Monetary PolicyFederal ReserveMonetary Policy Actions
17
Slide18
THE ECONOMIC PRINCIPLES OF VALUATION
Principle of SubstitutionPrinciple of ConformityPrinciple of ProgressionPrinciple of regressionPrinciple of ChangePrinciple of Supply and DemandPrinciple of Competition
18
Slide19
PRINCIPLE OF SUBSTITUTION
When a Property Easily can be Replaced by Another, the Value of Such a Property Tends to be Set by the Cost of Acquiring an Equally Desirable SubstituteThe Principle of Substitution is a Basic Concept Behind Each of the Three Approaches to Value
19
Slide20
PRINCIPLE OF CONFORMITY
Maximum ValueProperties are similarSizeStyleQualityAmenities/UtilityOver-improvement5 bedroom in a 3 bedroom neighborhood
20
Slide21
PRINCIPLES OF REGRESSION & PROGRESSION
ProgressionLower value properties benefit from being close to high value propertiesRegressionHigher value properties tend to decrease in value when close to lower value properties.Is This an Illustration of Progression or Regression?
21
Slide22
PRINCIPLE OF CHANGE
Change is EternalPhysicalSocialEconomicPolitical conditionsNeighborhood ChangeDevelopment (growth)StabilityDeclineRenaissance (rebirth)
22
Slide23
PRINCIPLE OF SUPPLY AND DEMAND
Price Goes Up with an Increase in Demand or Decrease in SupplyPrice Goes Down with a Decrease in Demand or Increase in SupplyTheoretically, when Supply and Demand are in Balance, Market Prices Reflect the Cost of Production with Reasonable Profit
Agents of ProductionPrinciples of:Surplus ProductivityBalanceContributionPrinciple of Increasing and Decreasing ReturnsPrinciple of Highest and Best UsePrinciple of Consistent UsePrinciple of Anticipation
25
Slide26
AGENTS OF PRODUCTION
LaborCoordinationCapitolLand
26
Slide27
PRINCIPLE OF SURPLUS PRODUCTIVITY
The Net Income or Other Benefits that Remain after the Cost of Labor, Coordination, and Capital have been satisfied have been described as the “Residual” Returns to Land.Surplus of ProductivityDollar Amount of Surplus becomes Basis of Land Value
27
Slide28
PRINCIPLE OF BALANCE
Proper Balance in the Agents of Production is Required if the Maximum Value is to Result from the Costs Invested.Consistent with Principle of Conformity
28
Slide29
PRINCIPLE OF CONTRIBUTION
The Benefit of An Agent of Production Depends Not on Cost But How Much it Contributes to ValueA pool may cost $25,000 but only contribute $10,000 of value.Principle of Surplus Productivity is the basis for the Principle of increasing and decreasing returns and the principle of highest and best use.
29
Slide30
INCREASING & DECREASING RETURNS
Fertilizer Principle!Added increments of fertilizer and labor do not result in equal increases in crop yieldThis principle helps property owners make decisions about adding improvements or remodelingWhat to add and to what degree
30
Slide31
PRINCIPLE OF HIGHEST AND BEST USE
Highest and Best Use Means the Most Profitable UseTheoretical Balance Between Land and ImprovementsHelps in estimating land valueHighest and Best Use as:VacantImproved
31
Slide32
PRINCIPLE OF CONSISTENT USE
Corollary to the Principle of Highest and Best UseMust appraise land and improvements on the basis of the same use. This photo shows that the improvements (house) are a detriment to development of town homes.
32
Slide33
PRINCIPLE OF ANTICIPATION
Value is the Present Worth of Future BenefitsThe Principle of Anticipation Underlies the Income Approach to Value.
33
Slide34
SUMMARY
34
Real
estate is a basic and fundamental form of wealth, it
has no intrinsic value. Its market value is a measure of the
rights that
the owners control, valued at prices set in the market. But
in order
to enter the market, the rights must have the four
elements of
utility, scarcity, demand
, and
transferability
.
We know that real estate is affected by changing business conditions
, such
as employment, income and price levels,
production volumes
, and
building construction
costs. Thus, it is possible
to analyze
and better understand real estate by observing key supply
Download this presentation
DownloadNote - The PPT/PDF document "REAL ESTATE ECONOMICS AND VALUE" is the property of its rightful owner. Permission is granted to download and print the materials on this web site for personal, non-commercial use only, and to display it on your personal computer provided you do not modify the materials and that you retain all copyright notices contained in the materials. By downloading content from our website, you accept the terms of this agreement.
Presentations text content in REAL ESTATE ECONOMICS AND VALUE
REAL ESTATE ECONOMICS AND VALUE
Chapter
5
Slide2CHAPTER TERMS AND CONCEPTS
Agents of productionAmenitiesDemandDemographyEconomic forcesFiscal policyGross domestic product (GDP)Monetary policyMonetary theory
Over-improvementPhysical forcesPolitical forcesPrinciple of anticipationPrinciple of changePrinciple of competitionPrinciple of conformityPrinciple of increasing anddecreasing returns
2
Slide3CHAPTER TERMS AND CONCEPTS
Principle of progression andprinciple of regressionPrinciple of substitutionPrinciple of supply and demandPrinciples of highest and best use and consistent usePrinciples of surplus productivity, balance, and contribution
Purchasing powerReal estate cycleScarcitySecondary marketSocial forcesSupplySurplus of productivityTransferabilityUtility
3
Slide4LEARNING OUTCOMES
List the four basic elements of value.List and give examples of the broad forces that affect value.Define real estate cycles.Name the major supply and demand factors that cause economic changes affecting real estate.Describe the federal government’s role in the economy.Explain how the principles of value relate to the marketing and productivity of real estate.
4
Slide5THE REAL ESTATE VALUE INFLUENCES
Real Estate has no Intrinsic ValueValue is Derived from Rights and Benefits that Come from:OwnershipPossession andUse
5
Slide6FOUR ESSENTIALS OF VALUE
UtilityUsefulness; the ability to create a desire for possessionScarcityIn relatively short supply; a lack of abundanceDemandThe desire to possess plus the ability to buy; effective purchasing powerTransferabilityThe ability to change the owner or use; marketable title
6
= Market Value
Slide7BROAD FORCES INFLUENCING VALUE
Physical ForcesSocial ForcesEconomic ForcesPolitical Forces
7
Slide8PHYSICAL FORCES
Natural ResourcesDeveloped Resources
8
Slide9SOCIAL FORCES
DemographicsNeighborhood StabilityPopulationLife StylesAttitudes; BehaviorAttitudes; DevelopmentAttitudes; Public Education
9
Slide10ECONOMIC FORCES
Income Levels
EmploymentWages and JobsMoney and CreditPrice LevelsPersonal SavingsGeneral Business ActivitySupply and Demand for HousingProduction of Goods and Services
10
Slide11POLITICAL FORCES
Zoning and Land UseBuilding and SafetyEnvironmental LawsEndangered Species ActPolice, Fire, and HealthCrime PreventionPublic WorksFiscal PolicyMonetary PolicyGovernment Sponsored ProgramsGovernment Regulations
11
Slide12HOW ECONOMIC TRENDS AFFECT REAL ESTATE
Economic Trends and the Business CycleReal Estate Supply FactorsReal Estate Demand FactorsFederal Government Activity
12
Slide13ECONOMIC TRENDS AND THE BUSINESS CYCLE
An Economic Trend is a Pattern of ChangesCyclesBusiness cyclesReal Estate CyclesThe Cycle of ConstructionNew Home SalesVolume of Sales
13
Used by Permission of Alma Dizon:
www.riverside-real-estate.us
Slide14REAL ESTATE SUPPLY FACTORS
Housing SupplyNew ConstructionSupply of Vacant Land
14
Slide15REAL ESTATE DEMAND FACTORS
PopulationPurchasing Power
15
Slide16FEDERAL GOVERNMENT ACTIVITY
Housing and Urban Development ProgramsFNMAFederal National Mortgage AssociationSecondary MarketFHAFederal Housing Administration
16
Figure 5.5:
Government
Housing Project
under
Construction
Slide17FEDERAL GOVERNMENT PROGRAMS
Energy and the EnvironmentEPAEnvironmental Protection AgencyFEMAFlood MapsGovernmental Banking and Monetary PolicyFederal ReserveMonetary Policy Actions
17
Slide18THE ECONOMIC PRINCIPLES OF VALUATION
Principle of SubstitutionPrinciple of ConformityPrinciple of ProgressionPrinciple of regressionPrinciple of ChangePrinciple of Supply and DemandPrinciple of Competition
18
Slide19PRINCIPLE OF SUBSTITUTION
When a Property Easily can be Replaced by Another, the Value of Such a Property Tends to be Set by the Cost of Acquiring an Equally Desirable SubstituteThe Principle of Substitution is a Basic Concept Behind Each of the Three Approaches to Value
19
Slide20PRINCIPLE OF CONFORMITY
Maximum ValueProperties are similarSizeStyleQualityAmenities/UtilityOver-improvement5 bedroom in a 3 bedroom neighborhood
20
Slide21PRINCIPLES OF REGRESSION & PROGRESSION
ProgressionLower value properties benefit from being close to high value propertiesRegressionHigher value properties tend to decrease in value when close to lower value properties.Is This an Illustration of Progression or Regression?
21
Slide22PRINCIPLE OF CHANGE
Change is EternalPhysicalSocialEconomicPolitical conditionsNeighborhood ChangeDevelopment (growth)StabilityDeclineRenaissance (rebirth)
22
Slide23PRINCIPLE OF SUPPLY AND DEMAND
Price Goes Up with an Increase in Demand or Decrease in SupplyPrice Goes Down with a Decrease in Demand or Increase in SupplyTheoretically, when Supply and Demand are in Balance, Market Prices Reflect the Cost of Production with Reasonable Profit
23
P
r
ice
Quantity
Demand
Supply
Slide24Principle of Competition
Market Demand Generates ProfitsProfits Generate CompetitionExcess Profits Usually Generate Ruinous Competition
24
Slide25PRINCIPLES OF REAL ESTATE PRODUCTIVITY
Agents of ProductionPrinciples of:Surplus ProductivityBalanceContributionPrinciple of Increasing and Decreasing ReturnsPrinciple of Highest and Best UsePrinciple of Consistent UsePrinciple of Anticipation
25
Slide26AGENTS OF PRODUCTION
LaborCoordinationCapitolLand
26
Slide27PRINCIPLE OF SURPLUS PRODUCTIVITY
The Net Income or Other Benefits that Remain after the Cost of Labor, Coordination, and Capital have been satisfied have been described as the “Residual” Returns to Land.Surplus of ProductivityDollar Amount of Surplus becomes Basis of Land Value
27
Slide28PRINCIPLE OF BALANCE
Proper Balance in the Agents of Production is Required if the Maximum Value is to Result from the Costs Invested.Consistent with Principle of Conformity
28
Slide29PRINCIPLE OF CONTRIBUTION
The Benefit of An Agent of Production Depends Not on Cost But How Much it Contributes to ValueA pool may cost $25,000 but only contribute $10,000 of value.Principle of Surplus Productivity is the basis for the Principle of increasing and decreasing returns and the principle of highest and best use.
29
Slide30INCREASING & DECREASING RETURNS
Fertilizer Principle!Added increments of fertilizer and labor do not result in equal increases in crop yieldThis principle helps property owners make decisions about adding improvements or remodelingWhat to add and to what degree
30
Slide31PRINCIPLE OF HIGHEST AND BEST USE
Highest and Best Use Means the Most Profitable UseTheoretical Balance Between Land and ImprovementsHelps in estimating land valueHighest and Best Use as:VacantImproved
31
Slide32PRINCIPLE OF CONSISTENT USE
Corollary to the Principle of Highest and Best UseMust appraise land and improvements on the basis of the same use. This photo shows that the improvements (house) are a detriment to development of town homes.
32
Slide33PRINCIPLE OF ANTICIPATION
Value is the Present Worth of Future BenefitsThe Principle of Anticipation Underlies the Income Approach to Value.
33
Slide34SUMMARY
34
Real
estate is a basic and fundamental form of wealth, it
has no intrinsic value. Its market value is a measure of the
rights that
the owners control, valued at prices set in the market. But
in order
to enter the market, the rights must have the four
elements of
utility, scarcity, demand
, and
transferability
.
We know that real estate is affected by changing business conditions
, such
as employment, income and price levels,
production volumes
, and
building construction
costs. Thus, it is possible
to analyze
and better understand real estate by observing key supply
and demand factors in the general economy.