REAL4000-Test 2

Property Taxes

Ad valorem tax Regressive Increases if the ratio of assessed value/ market value decreases as property value increase. Vertical inequity Horizontal inequity is when the ratio changes for different property types Cornia and Slade (2006) find retail underassessed and office overassessed relative to apartments in Phoenix.

Innovative Zoning: Planning Unit Development

Allows mixed land uses and traditional requirements of setback and density limits are allowed to vary In exchange, the community receives enhancements such as: -More green or open spaces -More public facilities -Neighborhood designs

Economic Base

Activities that bring income into a city

Secondary (Local) Activities

Activities that recirculate income in a city (local government, local merchants and services)

According to the "central place pattern" concept, similar convenience goods would be

an evenly disbursed proximity from each other. While actual distances may vary due to the size and population of the municipality, similar convenience goods tend to be evenly disbursed with respect to the relative proximity of each other

Innovative Zoning: New Urbanism

an urban design movement which promotes walkable neighborhoods containing a range of housing and job types.

After a recent hurricane severely damaged a number of local structures, the city temporarily stopped issuing building permits for new development projects and structures so that city officials could review and revise the building codes as they relate to wind loads. This action is called

a moratorium

According to the Concentric Ring Model of Urban Form, which ring is immediately adjacent to the CBD land use ring?

industrial and warehouse Immediately adjacent to the central business district is the industrial and warehouse zone.

The coastal town of Oceanport has experienced steady growth due to the numerous commercial fishing companies that have sprung up over the past several decades. There are now several boat repair facilities, seafood canneries, and other businesses that have been created to service the growing commercial fishing industry in Oceanport. This is example best describes

industry economies of scale. Because the supporting businesses cater to one industry (commercial fishing), it is an example of industry economies of scale.

T/F: property tax laws favor a relatively easy process for collection

true

Urban Planning is needed for:

Storm Water Management Traffic Management Schools and other Services

Variations on Intraurban Location Patterns

"Convenience" goods and services Users tend to go to the closest source Ex: Sandwich shops Barber and beauty shops Drug stores Convenience grocery stores Automotive service stations Neighborhood shoppingcenters Other?

A comparable property sold 8 months ago for $125,000. This sale price is adjusted to a normal sale price of $123,200. If the appropriate adjustment for market conditions is .25% per month, what would be the market-adjusted normal sale price of the comparable property?

$125,686 In this question, the market conditions support 0.25% appreciation per month, so you must add 0.25% to the normal sale price of $123,200 for each month. Since this requires compounding, you cannot simply multiply 0.25% by 8 and apply it to the normal sale price.

Based on this information, calculate the effective tax rate. Taxes paid = $5,363; Market value of the property = $325,000; Assessed value of property (after exemptions) = $200,000

1.65% The effective tax rate is the market value of the property divided by the amount of taxes paid (or owed). Thus, $5,363 / $325,000 = 0.0165; or 1.65%.

Technical Changes from 1920 to the Present: Automotive revolution

1920: One car per 13 persons 1930: One car per 5 persons 2003: More than one car per driver Birth and advancement of the truck Expansion of highways Half of all roads were hard surface by 1940 Interstate system beginning in 1955

A very large research and teaching hospital is located in Newtown. It provides employment for 25% of the local community. The national employment average for hospitals is 8%. What is the location quotient for Newtown with respect to hospital employment?

3.125 To calculate, divide 25% by 8%, for a location quotient of 3.125.

The Valuation Process:

A formal process that is applied to every appraisal. Step 1: Identification of the Problem Step 2: Scope of Work Determination Step 3: Data Collection and Property Description Step 4: Data Analysis Step 5: Site Value Opinion Step 6: Application of the Approaches to Value Step 7: Reconciliation of Value Indications and Final Opinion of Value Step 8: Report of Defined Value

Sales Comparison Approach

A general method of appraising all types of properties. Compares the subject property with comparable or similar properties that have recently sold. Since real property is unique, the appraiser will adjust the transaction price of the comparable to the subject property.

Planning and Zoning Administration

A property owner may seek a change in zoning or relief from a zoning provision Legislative relief - a significant change approved by the local planning and zoning commission Administrative relief -A relatively minor change -Variance or special-use permit granted by the Board of ---Adjustments or Zoning Appeals Board -A variance permits use to deviate slightly from a strict interpretation of the zoning ordinance to avoid placing undue hardship on an owner Judicial relief

Which is NOT an effective way to manage real estate investment risk? A) "Lock in" the end user once the development has been completed. B) Avoid investments where there is a prospect of a major change in the tenants of the property. C) Invest in properties in a supportive market environment. D) Understand how land use types differ in their locational needs. E) Understand what brings change to the shape of a city.

A) "Lock in" the end user once the development has been completed. Effective ways to manage real estate investment risk are: avoid investments where there is a prospect of a major change in the tenants of the property, invest in properties in a supportive market environment, understand how land use types differ in their locational needs, understand what brings change to the shape of a city; NOT to "lock in" the end user once the development has been completed To help manage investment risk, the end user should be "locked in" before development begins.

Which is not a significant environmental hazard that real estate investors must be aware of? A) hydrogen gas B) asbestos C) radon gas D) leaking underground storage tanks E) black mold

A) hydrogen gas Asbestos, radon gas, leaking underground storage tanks, and black mold are significant environmental hazards that real estate investors must be aware of; NOT hydrogen gas

The basic powers of government to limit private property do NOT include A) the power to restrict owners from selling land. B) the power to acquire property for the benefit of the public. C) the right to tax property. D) the power to regulate land use. E) the right to charge for infrastructure improvements that directly enhance the value of the property.

A) the power to restrict owners from selling land. The basic powers of government to limit private property include: the power to acquire property for the benefit of the public, the right to tax property, the power to regulate land use, the right to charge for infrastructure improvements that directly enhance the value of the property; NOT the power to restrict owners from selling land

Technical Changes from 1920 to the Present: Data processing and communications

Advances in telephones Birth of computers Explosion of "cyberspace"

Technical Changes from 1920 to the Present: Advances for offices and retailing

Air conditioning Fluorescent lighting Self-service retailing (rise of packaging and advertising)

Income Approach Con't

All techniques used in the Income Approach are based on the fact that market participants demand investment returns in exchange for purchasing income-producing properties. Generally, competition between market participants results in a relatively stable relationship between income and value. A rule-of-thumb measure is GIM = Value/Gross Income

Key economic principles

Anticipation Change Substitution Contribution

Economic Base Multiplier: The idea

As goes the base, so goes the city

Technical Changes from 1920 to the Present:

Automotive revolution Production revolution Advances for offices and retailing Data processing and communications

Ways to Minimize Market Risk

Avoid projects with high market risk Most hotels and motels Restaurants and entertainment facilities Avoid projects with prospective major change Lease rollover for major tenants Major renovations Study urban markets

Which does not represent an arm's length transaction and, thus, should be excluded from consideration in an appraisal? A) A home that sold recently, but it is 10% smaller than the home being appraised. B) A home that sold recently to first-time home buyers who qualified for special low-rate financing. C) A home that sold six months ago, but is otherwise similar to the home being appraised. D) A home that sold recently, the buyer and seller did not get along.

B) A home that sold recently to first-time home buyers who qualified for special low-rate financing. Special or favorable financing considerations usually do not represent an arm's length transaction and should be excluded in an appraisal.

A local lawnmower repair shop has been in business for the past 25 years. The city recently passed a zoning ordinance prohibiting any type of business use in the neighborhood where the lawnmower repair shop is located. What is true about this situation? A) The owner of the repair shop must relocate his business. B) The business is a nonconforming use. C) If the owner dies, only a blood relative would be permitted to continue the business use. D) a and b only E) b and c only

B) The business is a nonconforming use. While the business is a nonconforming use, the owner may continue to operate the business within a framework of limitations.

Which element(s) would zoning regulations NOT cover? A) building set-backs B) the size of a family allowed to live on a property C) the category of land use D) structure height E) zoning restrictions may be imposed on any of the above

B) the size of a family allowed to live on a property Zoning regulations would cover: building set-backs, the category of land use, and structure height; NOT the size of a family allowed to live on a property

Economic Base Multiplier: Multiplier effect

Base income is respent, producing additional income

Income Approach Con't

Because GIM ignores good expense management, the net capitalization technique recognizes that the value of an income property depends on net rather than gross income. Capitalization rate = Net Income/Value Observed through transaction prices

Income Approach Con't

Because direct capitalization relies heavily on data from comparable sales, its effective use requires a high degree of comparability between the subject and comparable sales. Such comparability can be difficult for an appraiser to obtain Discounted cash flow analysis estimates all future components of the subject property Future gross income, expenses, and allowances Cash flow from disposition Appropriate required rate of return.

Technical Changes from 1920 to the Present: Production revolution

Birth of the assembly line Horizontal rather than vertical processes Effect of the telephone on decentralization Recent decades Automation Robotics Computer controls

Variations on Intra-urban Location Patterns: Comparison goods and clustering

Buyers want to compare many goods Rationale for shopping malls Motivation for "New car row"

The Comprehensive Plan Challenges

Changing notion of best practices e.g., mixed use Limited actual experience to rely on (about 30 years) Insufficient theory and information Inability to foresee the future well

Demand for Access: The Gravitythat Creates Cities

Cities are first and foremost places—agglomerations of people—rather than economic and political units. Demand for access causes urban clustering Competition for access creates the patterns of urban land uses

Implications of Industry and Agglomeration Economies: Cities with industry economies

Cities with industry economies may be more resistant to downturns due to cost advantage

Cities

Cities' power to make economic policy is limited. Cities are not economic and political units in the way countries or even states are. Consequently, they face fierce competition for mobile resources, especially for talent and brains.

Variations on Intra-urban Location Patterns:

Comparison goods and clustering Industry economies of scale and clustering

Limitations on Ownership

Complete Removal Restrictions on Use Division of Use or Possession Share in Value

Which statement about the location quality of a particular site is FALSE? A) The location of a parcel must consider its linkages. B) The location is dependent upon the type of land use being considered. C) The location quality of a site must be evaluated as part of the larger urban matrix. D) Nodes of activity tend to grow evenly within the context of the city. E) A weak location for one use may be a strong location for another type of use.

D) Nodes of activity tend to grow evenly within the context of the city. Nodes of activity do not grow at the same rate, as some may grow faster, while others decline. This is why cities do not grow evenly. True statements about the location quality of a particular site: The location of a parcel must consider its linkages The location is dependent upon the type of land use being considered The location quality of a site must be evaluated as part of the larger urban matrix A weak location for one use may be a strong location for another type of use

The prosperity, or lack thereof, of a city is primarily dependent upon A) base activities. B) export activities. C) local activities D) a and b only E) all of the above

D) a and b only The prosperity, or lack thereof, of a city is primarily dependent upon base activities and export activities.

Which is NOT a criticism of the property tax? A) it varies among geographic areas B) it is regressive C) it is poorly administered D) it is difficult to collect E) Each is a legitimate criticism of the property tax.

D) it is difficult to collect Criticisms for the property tax are: varies among geographic areas, it is regressive, it is poorly administered; NOT that it is difficult to collect

Which is not considered a "property adjustment"? A) location B) economic conditions C) non-realty items (personal property) D) property rights conveyed

D) property rights conveyed Property rights conveyed are considered a "transactional adjustment" Property Adjustments are: location, economic conditions, and non-realty items (personal property)

Effects of Technological Change on Urban Form

Dispersion of employment and urban functions to suburbs Obsolescence of older structures Vertical manufacturing facilities Low-ceiling, small-depth buildings Non-air-conditioned office and retail buildings Very slow but profound change in streets and other aspects of transportation system

Bid-rent analysis

Explains how urban land uses are determined Assumes households or firms have one demand for access (single "linkage")

Supply Factors Affecting a Community Economic Base: Agglomeration economies

Economic efficiencies due to multiple local industries Airport and transportation infrastructure Financial services and banking Auto dealerships

Supply Factors Affecting a Community Economic Base: Industry economies of scale

Efficiencies of production due to scale of local industry Supply of specialized labor Publishing specialties in New York Aircraft specialties in Wichita Computer software and design in "Silicon Valley," Performing arts in New York, Los Angeles, Nashville Supply of vendors and materials

Cost Approach Steps:

Estimate the cost to produce the improvements Subtract depreciation Estimate and add the value of the site as vacant

Supply Factors Affecting a Community Economic Base: Leadership

Financial support Government support (subsidies, land use regulation)

Where Cities Occurred Preindustrial

Fortress or religious center

Where Cities Occurred Transition points in trade routes

From river to ocean (New York, New Orleans, Hamburg, Rotterdam) Intersection of rivers (Pittsburgh, St Louis) From water to rail (New York, Chicago, Minneapolis, St Louis) From rail to rail (Chicago, Atlanta)

Limitations on Ownership Complete Removal

Government: Eminent Domain Private: Liens

Limitations on Ownership Restrictions on Use

Government: Police Regulatory Power Private: Deed Restrictions

Limitations on Ownership Share in Value

Government: Taxation Private: n/a

Limitations on Ownership Division of Use or Possession

Government: n/a Private: Easements or Leases

Police Power

Governments have the power of regulation This gives them the ability to protect: -Public health -Safety -General welfare In addition to obvious action such as protecting against crime and health hazards, governments rely on policy power to enact a variety of controls over the way landowners use their properties Land Use

Key economic principles: Change

The dynamic nature of social, economic, governmental, and environmental forces that influence real property values accounts for change.

The Valuation Process: Step 1: Identification of the Problem

Identify the client and intended users Identify the intended use Identify the purpose of the assignment (type of value) Identify the effective date of the opinion Identify the relevant characteristics of the property Assignment conditions Extraordinary Assumptions Hypothetical Conditions

Reality of Urban Land Use

Households and firms have many linkages Competition for land use vastly more complex Determination of land rent and land value is therefore more complex Demand for access still is fundamental

Cost Approach

In addition to existing properties, a buyer can substitute with raw land and build the improvement. Generally, the site value plus the production costs sets the upper limit to value. May be the only applicable approach due to the uniqueness of the property. For example: Six Flags and amusement parks Cemetery Historical property

Escheat

In the unlikely event a landowner dies without leaving either a valid will or living relatives, the state government becomes the new owner.

Income Approach

Income-producing property offers the owner anticipation of future cash flows in the form of rent as well as capital appreciation. The application of the economic principle of Anticipation is direct. Appraisers first estimate the periodic income and then convert the income forecast into a value estimate. The process of converting income into a value estimate is income capitalization.

Supply Factors Affecting a Community Economic Base

Labor force characteristics Quality of life Leadership Industry economies of scale Agglomeration economies

Location Quotient as a Quick Indicatorof Economic Base

Location Quotients (LQs) are ratios that allow an area's distribution of employment by industry to be compared to a reference or base area's distribution. The reference area is usually the U.S., but it can also be a state or a metropolitan area. If an LQ is equal to 1, then the industry has the same share of its area employment as it does in the reference area. An LQ greater than 1 indicates an industry with a greater share of the local area employment than is the case in the reference area.

Some Implications for Real Estate Market Analysis:

Location within the urban matrix is the most meaningful notion of location Distances from relevant activities Relevant linkages depends on type of land use Urban growth is not uniform; there are both emerging and declining nuclei The transportation network and urban patterns respond to technical and market changes, but very slowly - over many years

The Valuation Process: Step 4: Data Analysis

Market Analysis Highest and Best Use Site as though vacant Ideal improvement Property as improved

The Valuation Process: Step 3: Data Collection and Property Description

Market Area Data Subject Property Data Comparable Property Data

Where Cities Occurred Natural Resources

Mining (San Francisco, Denver, Pittsburgh) Oil (Houston, Dallas, Beaumont-Port Arthur)

Greatest Cities Have Experienced Sequence of Bases

Minneapolis and Chicago Trapping and fur trade, agriculture, industrial, service, finance and control Pittsburgh River trade, coal and iron, steel, commerce and services, research and health care Detroit Fur and agricultural trade, iron and steel, automobiles

Market Failures in Real Estate

Monopoly Externalities Incomplete Information

Economic Base Multiplier: Multiplier effect is greater as city is

More isolated More diversified Larger The base activity uses more local goods and services

Where Cities Occurred

Preindustrial Transition points in trade routes Natural Resources

Innovative Zoning: Transferable Development Rights

Owner A has a 10-acre wooded property. Owner B has a bare 10 acres that she wishes to develop. The zoning requires ½ acre lots so she can build 20 homes. Since Owner A has no interest in developing his property, he sells his development rights to Owner B and she can now build 40 homes (20 from each property).

Cost Approach Steps: Subtract depreciation

Physical deterioration Functional obsolescence External obsolescence

Traditional Land Use Controls: Subdivision Regulations

Pre-application Process Approval of the Preliminary Plat Approval of the Final Plant

Export activities

Products or services provided to the outside world (most manufacturing; higher education and research, advanced health care) Activities that attract money (retirement, tourism)

Sales Comparison Approach: The basic elements of comparison include:

Real property rights conveyed Financing terms (i.e., cash equivalency) Conditions of sale (i.e., motivation) Expenditures made immediately after purchase Market conditions Location Physical characteristics (e.g., size, soils, access, construction quality, condition) Economic characteristics (e.g., expense ratios, lease provisions, management, tenant mix) Use (e.g., Zoning, building codes, flood zones) Non-realty components of value (e.g., business value, franchises, trademarks)

Cost Approach Steps: Estimate the cost to produce the improvements

Reproduction cost Replacement cost

A property owner is interested in simply knowing the current value of her property. She does not intend to share the appraisal with anyone or use it for any other purpose. As such, she would like an appraisal report that is as brief as possible, providing only a minimal discussion of the appraisal and the property value. Which appraisal report best satisfies these criteria?

Restricted appraisal report A restricted appraisal report provides the least information and is intended only to satisfy a client's desire to know the current value of the property.

What is the definition of Public Use

Road projects Blight Development of marina, parks, private office complexes, condominiums and a hotel Football stadium privately owned by billionaires

The Valuation Process: Step 6: Application of the Approaches to Value

Sales Comparison Cost Income

Supply Factors Affecting a Community Economic Base: Labor force characteristics

Special skills and experience Education level Unionization Work ethic

Determining the intended use of the appraisal is a factor in which step in the appraisal process?

Step 1: Identify the Appraisal Process

Traditional Land Use Controls:

Subdivision Regulations Zoning Building Codes

Variations on Intra-urban Location Patterns: Industry economies of scale and clustering

Suburban office parks Research universities Tourist attractions

Locational pattern:

Tends toward uniform dispersion Distance of separation depends on customer concentration and minimum required market size

Takings versus Police Power

The action is "taking" when the government acquires property for public use under eminent domain. This requires the payment of compensation. Can include partial property rights e.g., easement Under American law, police power does not allow government to outright divest an owner of their property, so normally this does not constitute taking.

Eminent Domain

The government right to acquire private land without the owner's consent for public use with due process and just compensation

clustering:

The optimal location pattern for similar types of businesses

Inverse Condemnation

The property owner initiates action to recover the loss of property value due to: -a new public project (negative externality) -new regulation

The Valuation Process: Step 2: Scope of Work Determination

The type and extent of research and analyses in an assignment. The extent to which the property is identified The extent to which the property is inspected The type and extent of data researched

Key economic principles: Contribution

The value of a component part of a property depends on the amount it contributes to the value of the whole

The Comprehensive Plan

To ensure urban areas develop in an orderly fashion almost every local government has a statement of policies for future development in the community

Innovative Zoning

Transferable Development Rights Planning Unit Development New Urbanism Smart Growth

T/F: Traffic congestion is a negative externality often created by large developments.

True

Urban Real Estate Markets Derivefrom the Urban Economy

Urban growth causes real estate market growth Urban decline causes real estate market decline Urban change causes real estate market change Urban land use patterns dictate real estate location patterns.

Traditional Land Use Controls: Zoning

Use districts - zoning map Type of Use Intensity of Use

Key economic principles: Anticipation

Value is created by the anticipation of benefits to be derived in the future

The loss in value within a structure due to changes in tastes, preferences, and technical innovations is called

functional obsolescence

Key economic principles: Substitution

When several similar or commensurate commodities, goods, or services are available, the one with the lowest price attracts the greatest demand.

After a subdivision development has been completed, the developer will often turn over ownership of the roadways and utilities in the subdivision to the local government to maintain. This is known as

a dedication Provided developers satisfy all the regulations that govern a subdivision, the roadways and utilities in subdivisions are usually dedicated to the local government, meaning that they become the property and responsibility of the local government to maintain.

Economic base (export) activities:

bring outside money into the local economy, which is then recirculated in the local (or secondary) activities. Therefore, without economic base (export) activities, there would be little, if any, monies to fund local (secondary) activities.

Seven different car dealerships are located along a two-mile stretch of US Highway 19 in Pinellas County, Florida. This is an example of

clustering

A large shopping mall has been built at a previously undeveloped intersection. Many residents are upset at the long waits they are now experiencing at traffic lights near the mall. What term best describes this result of certain types of development?

congestion

In the _________________ approach to valuation, accrued depreciation must be accounted for when determining the current value.

cost In the cost approach to valuation, accrued depreciation must be calculated and subtracted from the reproduction or replacement cost of the building.

The "gravity" that holds a city together is

demand for access

The value of real estate cannot be determined in the same manner as stocks or other securities because

each parcel of real estate is unique.

Implications of Industry and Agglomeration Economies: Cities with agglomeration economies

may have long-term advantages: Incubator for new businesses Cost advantage for emerging industries

A city's planning commission has approved a new residential development that will be characterized by narrow streets laid out in a grid pattern with houses built close to the street, include front sitting porches on each house, and locate garages in the rear of the houses, accessible by alleys. This type of planning is most accurately described as

new urbanism

In appraising, the property being appraised is commonly referred to as the "_________________".

subject property

A moratorium is

the temporary cessation of development until a certain issue that may affect the health, safety or welfare of a municipality can be addressed

The value movements attributed to changes in market conditions are best estimated by

tracking the prices of individual properties as they sell repeatedly over time.

The most profound impact affecting urban form and urban real estate markets has been changes in

transportation. The increase in automobile ownership and creation and expansion of road and highway systems continue to impact urban form. Advancements in transportation alleviate the need to be centrally located.