Real Estate Licensure 1.2 Flashcards

Real Estate Licensure 1.2 Flashcards ProductionReal estate production refers to the development of land and the construction of improvements. This is a relatively slow process and, as a result, the real estate market is slow to respond to changes in demand. This is particularly true of real estate projects that are difficult to "put on hold" once planning actually begins. Large real estate developments require years of planning in order to arrange complicated financing packages and accomplish extensive site preparation. Thus a big high-rise apartment complex might be started when the market is favorable and demand for such housing is high, but by the time it is completed the market may have changed drastically and demand may be very low.ScarcityThere is a limited supply of land. Although that statement may not seem to be true of certain areas, such as rural or wilderness areas, the concept derives from the fact that the supply of land is fixed and can never be increased. Certain land with desirable location and of a certain quality is presently scarce, and other types will become so in the future.Economic Characteristics of LandScarcityArea preference or situsPermanency of improvementsProductionAssemblage Physical Characteristics of LandImmobility;Indestructibility;Uniqueness (heterogeneity) Uniqueness/HeterogeneityLand and improvements are not standardized or homogeneous. Parcels of land differ in size, shape, location, and appearance.Permanence of ImprovementsThe permanence of improvements, combined with the immobility of the underlying land, makes the real estate market less flexible than other markets. Investments in land, and improvements to land, tend to be long-term. As a result the real estate market is slow to respond to changes in supply.IndestructibilityLand cannot be destroyed. Its value may be destroyed by changing conditions, but physically land goes on forever.This is not to say that land does not "move" on occasion.

Example: accretion, where the action of water causes land

to build up on one parcel, thereby subtracting from another parcel; erosion, where land is eaten away by the action of water and weather (see our discussion of title by accession in the Title and Ownership Module).

AssemblageThis economic term refers to the concept of combining two or more contiguous parcels of real estate into a single parcel under one ownership. This is usually done when the combined property will be more valuable than the sum of the individual parcels. Large office buildings or apartment complexes frequently require assemblage of several individual parcels (occasionally a whole city block must be assembled before a project can proceed). Any increase in value resulting from assemblage is known as plottage value.ImmobilityLand is physically immobile. It cannot be moved from one geographical location to another. Consequently, the real estate market is local in nature. Also, due to its immobility, the value of a piece of real estate is directly affected by its surroundings, things external to itself. For instance, a very nice, well-maintained house will lose value if the neighborhood around it seriously declines.Area Preference or SitusWhen used in real estate situs is an economic term that refers to the economic quality of a parcel of real estate.

Situs consists of two factors: (1) certain locations are more

preferable than others; and (2) real estate is immobile - it cannot be moved.