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by: Alyce Quitzon


Alyce Quitzon
GPA 3.96

Richard Rachal

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Richard Rachal
Class Notes
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This 44 page Class Notes was uploaded by Alyce Quitzon on Tuesday October 13, 2015. The Class Notes belongs to FIN 3351 at Louisiana State University taught by Richard Rachal in Fall. Since its upload, it has received 59 views. For similar materials see /class/222539/fin-3351-louisiana-state-university in Finance at Louisiana State University.




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Date Created: 10/13/15
TEST 1 Chapter 1 The Nature of Real Estate and Real Estate Markets Investment decisions decisions about the acquisition disposition or improvement of real estate Real Estate is property Two types of property 0 Tangible property physical assets that can be owned I Real tangible property property attached to the land I Personal tangible property anything movable or not fixed to the land 0 Intangible property nonphysical assets such as stocks bonds mortgages and leases I Includes contractual rights mortgage and lease agreements financial claims stocks amp bonds interests patents or trademarks The term quotreal estate used 3 ways Real estate as a tangible asset land and permanent improvements to the land 0 Improvement ON the land structures like buildings 0 Improvements TO the land and amp its permanent improvements improvements is anything that wasn t naturally there with the land I Excavation and fill I Sewers and other utilities I Roads and driveways infrastructure 0 quotRawquot land large area that does not include any improvements 0 Real estate as a tangible asset can be real or personal property Real estate as a bundle of rights 0 Exclusive possession of the real property rights associated with the ownership and use of the site and improvements to the land 0 Use or enjoyment these rights include shelter security and privacy as well as location that facilitates business or residential activities 0 Disposition sell it will it to an heir donate it etc I Sell air rights sell water rights 0 Can be unbundled in many ways just the timber minerals subdivided I Can be divided and distributed among multiple owners and nonowners 0 Apartment bldg owners grant the tenants the right to shelter when they lease out the room 0 Tenant may divide his interest when he subleases the unit 0 Value of a bundle of rights is a function of the property s physical locational and legal characteristics I Age size design and construction quality I Size shape other natural features of the land I Convenience and access to places of employment schools shopping health care facilities I Visibility access to customers suppliers employees or availability of reliable data and communication infrastructure Real estate as an industry or profession very high risk 9 out of 10 have trouble or are unsuccessful high risk means high return 0 Industry activities associated with evaluating producing acquiring managing and selling real property assets Must know and understand your market and have capital borrow cash investors etc Real estate firms are small businesses 70 have assets under 50 million Brokerage Development usually no clear path to become a developer Leasing Property management Asset management Real estate law Appraisal Marketing consulting Counseling Planning Government regulation and taxation Housing assistance OOOOOOOOOOOOOOO Mortgage finance I Constructionfinance I Longterm finance 0 lnvestmentmanagement Breakdown quotRawquot land Land Improvements Real Estate Real Estate Bundle of Rights Real Property Where s personal property Anything movable that s put on top of real property Real estate and the economy Half of the world s wealth Generates 28 of US gross domestic product 0 Housing alone accounts for almost 20 Generates 70 of local government revenue property tax Creates jobs for nearly 9 million Americans Land Use in the United States 2002 Developed Forest and other 6 Rural la39n d Water and 24 us Land 23 Range and Pasture Land e Farestatuther l l A h t l l lll l l M39H usesufsl39ml39larpurpuse range land and farest land Land Uses 39 39 u l p u Exhibit 11 Land Use and Land Use Changes l39n the United Stale 1982 Land Use nl39 2002 Land Use 75 0139 Land Use mil nl acres 39l39nta mil of acres Tnlal Developed land 73 4 KW 3 Wmsr as and federal land 44 23 452 Cmp lurid 420 239 368 19 CRP land 32 P suu39e luml ISI 7 I I7 6 Range land 416 2 405 21 Foresl land 403 2 405 21 Other rural land 48 2 5 3 Tomls L938 IOU LUKE IOU Depanmanl ul Agrlcullura Naliunal Resnurces lrlverllul39y 2002 Annual 00 httpwww nrcsusdagnvl lactmlcalNRl Nola mat Alaska and Hawali are rlm includeu ln h le labulalad gures Real Estate and US Wea th e a l M rket value at Real Estate ls appmxl39mately 234 Trl39lll39url a Value at uutstandl39rlg real estate mmgage debt was 111 Trl39lll39url gt larger than the exlstlhg stuck at bath Aggregate market values at selected asset categurl39es 2005 US Huusehuld Wealth 2005 Exhibit 13 US Household Wealth 2nd Qtr 2005 Assetl liability category in billions of total Tangible assets Housing 18433 30 Consumer durables 3700 6 Nonprofit tangible assets 1814 3 Financial asse s Deposits amp money market funds 5784 9 Government amp corporate bonds 2442 4 Stocks amp mutual fund shares 9924 16 Pension assets excluding stocks 10132 17 Other securities 2183 4 Noncorporate business equity 6564 11 Total assets 60976 Home mortgages including lines of credit 7962 71 Other debt 3181 29 Total liabilities 11142 100 Net worth 49834 Owner39s equity in real estate 10472 Owner39s equity as a percent of housing and net worth 57 19 Selected Household Assets as a percentage of total assets 350 300 M 250 200 150 7 100 r 50 7 00 i 2000 2001 2002 2003 2004 2005 GovtCo Bonds Stocks Housin Real Estate values are determined by interactions in three sectors User markets tenants owners 0 The real world Characterized by competition among users for physical location and space This market determines who gains the use of each parcel of land and how much they must bid for its use Includes potential occupants both owner occupants and tenants or renters The demand for real estate derives from the need that these individuals firms and institutions have for 0000 convenient access to other locations as well as shelter to accommodate their activities Capital markets 0 Serve to allocate financial resources among households and firms requiring funds 0 Participants invest in stocks bonds mutual funds private business enterprises mortgage contracts real estate and other opportunities with the expectation of receiving a financial return on their investment wanting the highest return I Equity interests owners of the real estate expect to receive a return on investment thru the collection of rent and thru price appreciation Debt participants the lenders who hold claims to the interest on borrowed funds that are secured by individuals businesses and property 0 See table below Public amp private market components Governmental Sector local has the most influence then national then state 0 Local government has the largest influence Supply and cost of real estate thru zoning codes amp other land use regulations fees on new development building codes that pose restrictions Affects rental rates in user markets thru property taxes supply and quality of RE by its provision of roads bridges mass transit utilities flood control schools social services amp other infrastructure the influence of local government on real estate values thru land use controls property tax policy and services 0 State government has the least influence I In charge of licensing Statewide building codes disclosure laws and fair housing laws requirements for local government land use controls control schools transportation systems social services law enforcement 0 National government Income tax policy can affect the value of real estate housing subsidy programs federal flood insurance programs federal reporting and disclosure requirements Federal Reserve System FDIC and Fannie Mae amp Freddie Mac laws protecting the environment from endangered species also affects RE Who decides how much your rent should be The lg r Il iiliiltai quot The four quadrants of Real Estate Capital Markets Private Public directly held indirectly held Equity Individuals firms and Investors in publicly owners institutions traded real estate companies and equity REITs Debt Banks insurance Investors in mortgage lenders companies private lenders backed securities and mortgage REITs REIT Real Estate Investment Trusts uses pooled capital of many investors to purchase amp manage income property and mortgage loans REITs has a 5 or fewer rule Top 5 investors can not own more than 50 of REIT If they do they are considered to be a corporation 90 of NI for REIT has to be paid out in dividends nomy at Lar e E Local Regional National and Global quotReal Worldquot quotFinancial Worldquot Nonreal estate inv stments Flequi ed Fleturns 1 sayings Demand for Space Construction and Location Costs opportunities Real Estate Value Determination Capital Markets Supply Savings Property Cash Flew VALUE Rental Rates Rental Rates Demand Investment Opportunities Government Influence State National User markets and capital markets affect value HELOC Home Equity Line of Credit uses house as collateral Characteristics of Real Estate Markets Heterogeneous products each property has unique features 0 Each parcel of land has a unique locationvalue signature LVS and differences in LVS create variation in property values Immobile products RE is location and it is immobile anotherterm for location is access Localized markets markets tend to be localized potential users of property and competing sites generally lie within a short distance of each other Segmented markets markets are highly segmented due to the heterogeneous nature ofthe products 0 Investment grade properties or institutional grade real estate the more valuable commercial properties over 10 million 0 Can ge segmented according to price types etc Privately negotiated deals with high transaction costs transactions involving directly held real estate generally are privately negotiated between the buyer and seller transaction costs include search costs and actual costs MC answers 1b 2d 3d 4b Sd 6b 7a 8d 9c Chapter 2 Value amp Real Estate Decisions Why do we invest The individuals are judging that the value of what is gained exceeds the immediate cost being paid Value and Investment Decisions An individual39 quot quot is one 0 Significant time into the future 0 Significant irreversible costs now Inflows yearly aftertax cash flows 0 Cost to obtain them 0 Expected benefit of receiving cash flows 0 Sale of property now in return for benefits in the future Elements of a n investment decision Future Benefits l Financial Noaninancial Initial Cost Normal business decisions vs real estate decisions Normal business decisions 0 Recruit personnel 0 Choose ways to generate business 0 Choose marketing strategies or channels 0 Select an organizational structure 0 Select equipment Real estate decisions 0 Choose the location 0 Rent or buy 0 Expand or not 0 Renovate or not 0 Hold or sell 0 How to finance or refinance The cash flows of a Real Estate Investment Future Net Cash Flows Cash Flow Cash Flow at Sale initial Cost mm Operations What are the factors influencing residential real estate investment cash flows construction cost and the future value The monetaw cost applied to all real estate is appreciation or depreciation Nonfinancial Factors in Real Estate Decisions Example a choice of personal residence Important to internalize information on the non financial factors Decision is intuitive but no less of a valuation decision 0 Proof houses do have prices Teacher notes 0 What are other examples of nonmonetary value of real estate I Location I School zone I Neighborhood I package of expected benefits o Is purchase of land house vacation home car etc an investment Why or why not I Yes because you re putting in costs right now for expected benefit in the future Spectrum of Risk in Investments Exhibit 22 The Spectrum of Risk in Investments NonReal Estale US Tveasury securities quot1le Highgrade rate Low High Risk Risk I I Nat lease to Apnmwms AAA tenant Home Real Estate Four combinations of Investment Risk Exhibit 23 Foul Combinations of Investment Risk C051 is uncertaln I cost Is canai 39 Cash ows are certaln n I Cash llOWS are certain El E Cost Is canaln 7 Cost Is uncertain 0 Cash flows are meanth Cash ows are uncertaln Investment risk degrees of risk 1 No risk 2 Cost uncertainty 3 Future CF uncertainty 4 Cost uncertainty amp Future CF uncertainty Cash flows are said to be risky if their arrival time or their amount can vary from what s expected when the asset is purchased The lowest risk level in real estate is investment in properties like warehouses involving a financially strong tenant committed to a longterm net lease Amongthe highest risk levels of real estate investment is raw land held for speculation because it faces both extreme market uncertainty and regulatory uncertainty Significance of Cost Risk vs Cash Flow Risk Cost risk is immediate and therefore can have greater impact on value Each risk requires special expertise 0 Cost risk is evaluated by engineers and building contractors 0 Cash flow risk is evaluated by brokers market researchers or appraisers Cash Flow uncertainty brings in a major factor of liquidity the ability to sell quickly for fair market value The less liquid the more value uncertainty Spectrum of Cost uncertainty Exhibit 24 The Spectrum of Cost Uncertainty Purchase at older structure Purchase at new structure an Uncertainty High Uncertainty Uncertainty of costs is characteristic of renovation and urban development Uncertainty of cost is also characteristic of innovative or unique structures Spectrum of Cash Flow Uncertainty Exhibit 25 The Spectrum of Cash Flow Uncertainty Nel lease with credit tenant Low Uncertainty High Uncertainty Industrial property warehouses tend to have reliable cash flows Normal multifamily property have steady cash flows Office property markets are cyclical creating volatility in occupancy and rental rate growth Highest uncertainty in cash flow is hospitality property Risk Investment amp Yield Two investment choices 0 Vacant residential lot in which one can sell in one year for 50000 0 Treasury bonds that will mature in one year paying 50000 Which would you pay the most for You would probably pay more for the treasury bonds because they have less uncertainty Why Higher riskiness lowers the value The vacant lot is llraw land which is has the highest level of risk both cost uncertainty and future cash flow uncertainty If you purchase the lot for 40000 and sell it in a year for 50000 how much as your money grown 25 If you purchase the treasury securities for 48000 how much does your money grow 4 What do we call these growth rates 0 Before expected rate of return 0 After actual rate of return Ways of managing Real Estate Risk Avoid risky ventures Study real estate an ongoing interest Do not accept advice on an uninformed basis 0 Agency effect or adverse selection agents can try to shortchange you Get experience in a type of investment 0 Work for experienced persons 0 Make only smallscale investments Two concepts of real estate Investment value value to a particular individual Appraised value value to a typical investor or probable selling price 0 Why does the real estate market need such a specific profession as appraisal A condo conversion story rent or buy Price 157000 Financing 0 90 of the price 0 30 years 575 0 82459 Closing costs 9429 Property taxes Approx 2400 Monthly Association Fee 16000 Current Apartment Rent 1010 MC answers C C C E C D D E D A Chapter 3 Legal Foundations to Value Are these two houses really the same No because they re heterogeneous they are unique City vs County lmplied easements Prescriptive easements Easements in gross Homestead rights Restrictive covenants What are rights Claims that the government is obligated to enforce o Derived from the constitution 0 Different from raw power Nonrevocable 0 Can be reduced in the interest of health safety and welfare Enduring 0 Not limited to the memory of owners and others 0 Cannot be nullified by government Rights must be what Derived from the constitution lrrevocable Enduring lasts til your death Real Property as A Bundle Of Rights What do we mean by rights What are property rights What is real property real estate bundle of rights What is personal property What do we do when the difference is unclear 31 Flights In Our Society Freedom or ankles my Household goods Freedom Di Sims and bonds Nodouhleleopamyor Pevsonal Musw seilvincvimlnalion Property Protection ellile Real H95Idme o llbertyan properly rope y Commercial building wi oul Govtsmmambuildlng oompensauon Religiousbulldlng Sireets mumsas seafl fla bridges c Unlmes Personal Rights vs Property Rights Personal Rights 0 Freedoms guaranteed by constitution Supreme court interpretations ofthe constitution Property rights 0 Exclusive possession o Enjoyment ofthe use or benefit use collect rents harvest and retain the quotfruits of the land 0 Freedom to dispose as one pleases within the limits of safety sell convert rebuild etc MReal Property Interests A bundle of rights Disposition you can sell it Use you can use itasyou like Possession you can do whateveryou want with it Exclusion you can separate it ortell anyone to get off of it Realvs Personal Property Real property rights in land and its permanent structures 0 Surface of the earth and improvements 0 Air up to reserved air space ortallest structure 0 Beneath the earth as far as technology allows minerals oil and gas water Personal property all other property 0 Personal and household goods 0 Intellectual property 0 Music Exhibi 32 Real Propeny Rights in Three Dimensions 5 59969 Built on Air Rights Air rights stop with tallest building Ifyou own an apartment building and have a tenant pay for a view ofthe harbor then a building gets built between your building and the harbor obstructing your tenants view then it is a violation of your right You have the right to enjoy beauty view easement 0 Apartment owner can sue bldg owner because they took away the view easement Distinguishing real and personal property Which are personal property and which are real Construction materials 0 Valuable chandelier Custom drapes Kitchen range and refrigerator Retail display cases Restaurant booths and otherfurnishings Basketball goal attached to a garage Backyard playhouse All ofthese depend on whetherthese are fixtures 000000 0 MFixtures Fixture real property that formerly was personal property Rules for determiningwhen something becomes a fixture Manner of attachment O 0 Character of the article and manner of adaptation custom screens or storm windows church pews custom designed furniture 0 Intention of the parties dominant rule or customary assumptions of the realm I Ex Kitchen appliances in a single family residence vs appliances in an apartment I If the intention when installed was for it to stay with the property it stays it s a fixture I lt s customary for a fridge in a residential home to not be a fixture take it with you but it is a fixture in an apartment leave it there 0 Relation of the parties variant rule of intention I Trade fixtures personal property I Fences and other agricultural improvements I ltems installed by tenant in residence Tests for a fixture lntent of the parties customary practice 0 Residential fridge vs Apartment fridge Relationship of the parties trade or farming fixtures of a tenant o If you buy a retail shop with built in booths the booths come with the shop fixture 0 Fence in a leased agricultural plot of land belongs to the leasee who is leasing the land from the owner lease ends fence goes with farmer 0 Fence in a residential home that s being leased belongs to the owner whether the renter or the owner put it up Annexation of item damaging to remove o Damaging to remove like speakers or basketball goal Adaptation of the item custom fit 0 Custom items specifically for your house 0 Chandelier custom drapes Real Property lnterests lnterest any set of rights in real property Estate a real property interest that includes the right of exclusive possession actual property Nonpossessory interests can t touch them 0 Easements o Restrictive covenants o Liens Exhibit 34 Estates gt39 Foo Simple absolute Ownership with Inheritance I Fee slmple conditional l with reverter interest Ownership estates Ordinary llle estate lreeholds 1 mm remainder interest 0 sh l1n ut WTreyltparvxvce o Homestead dower l with remainder Interest Estates 1 Tenancy tor years Leasehold I I Legal life estate Modern Leasehold Estate Interests don t own property but own the lease like McD who owns the building but leases the land that it sits on owner ofthe land has Leasehold Interest Tenacy for years 0 Leasehold for a specified period of time few days to many decades 0 Must be written if for more than one year 0 Written lease contract traditionally governed the relationship entirely Periodic tenacy o No definite length of time o Often by oral agreement 0 State law governs the time required for notice of termination usually half the rental payment period 0 Enduring til death Tenacy at will like employment at will Ownership Estates Fee simple absolute you own everything you get all parts of the bundle of rights you want this when you buy a house Fee simple conditional with reverter interest if you break a rule the owner gets the property back but you have the right until you break the rule 0 Like ifa restaurant bldg shuts down and the owner leases it out he tells the new tenant he can t open a restaurant in that bldg because the former owner has opened a new restaurant next door it can be the tenants until the tenant breaks that rule Ordinary Life Estate with remainder interest this is when an old lady wants her property to go to the church when she dies she sells her estate to the church for the future Legal life estate homestead dower with remainder interest when spouse dies half of property goes to spouse and half to children Limitations on ownership Complete Removal Restrictions on Use Division of Use or Share invalue possession Government Eminent domain Police regulatory Taxation power Private Liens Deed restrictions Easements leases Eminent Domain AKA adverse possession government restrictions on your owned property 0 Government wants to expand the road so they buy part of your front yard an appraiser comes in and says how much the land is worth that the gov is taking but he s probably a government appraiser so you should get a private appraiser Liens 0 Government liens 0 Mortgage liens 0 Judgment liens Eases utility lines utility boxes etc that you can t build anything on top of Easements Easement The right to use land for a specific and limited purpose Easement Appurtenant Right use of a dominant parcel of land enjoys over an adjacent servient parcel Affirmative easements allow things to happen 0 Driveway or access right of way 0 Sewer line 0 Drainage 0 Common wall Negative easements 0 Light and air easement o Scenic easement llRuns with the land rights and obligations are inseparable from the parcels involved Easements in Gross quotCommercial Easements Right to use land unrelated to any other parcel 0 Extract minerals and oil and gas Build a roadway or railway Run an irrigation ditch Harvest timber or crops 00000 0 Hunt fish snow mobile Lay a pipeline power line or cable Place and maintain a billboard or communications tower Conservation easement for wetlands preservation Transferable separately from land title or ownership More Easements Concepts License similar to an easement in gross but conveys permission rather than right 0 Revocable 0 Automatically terminated at the death of the grantor or sale of the land Exhibit 35 How Many Easements Are In This Scene G is an easement in gross Power lines are easements in gross AampC share a driveway easement appurtenant Driveway in E short one easement appurtenant F s driveway thru E s property easement appurtenant 0 Dominant is F F is benefitting o Servient is E Driveway to oil easement appurtenant 0 Dominant is oil 0 Servient is F Restrictive Covenants Deed Restrictions Covenants that impose restrictions on land use created at conveyance of land to a new owner Ex Setback lines height restrictions for structures Minimum floor area No freestanding structures No chainlink fences No RVs or boats parked in view of the street No cars regularly parked in the driveway No garage door facing the street Required architectural review No external antenna satellite dish or clothesline OOOOOOOOOO Required use of professional lawn service Two methods of creation 0 Restriction in a deed of conveying a single parcel of land to a new owner 0 Restrictions imposed on an entire subdivision at its creation I A list of restrictions recorded as a separate document I Mutually binding on all purchasers in the subdivision Enforcement of Restrictive Covenants Enforcement by court injunction Enforcement only by parties at interestsquot 0 Isolated deed restriction grantor or grantor s heirs o Subdivision restrictions all current owners lenders with mortgage loans and renters only within subdivision I II I II I I Courts are reluctant to enforce in case of delayed n changed changed public policy Retirement of restrictive covenants in some states Liens Lien an interest in property as security for an obligation usually a debt General liens arise from events unrelated to the property 0 Court awards damages 0 Federal tax liens Specific liens arise from ownership and use of the property 0 Mortgage 0 Mechanic s lien 0 Property tax or assessment lien Exhibit 37 Three Levels mi Liens on a Personal Residence 15 Property Tax Liens and Assessment Liens Always firs pmlily 2nd Mortgages and Mechanlcs Liens Priority Is by chronology May be nullled by nomeslea lenancyby the entirely IIsuI Is against Always in this order government mortgage and judgment Tax lien states you can buy taxes only Tax deed states you can buy taxes amp own property Exhibit 38 Forms of C4 Ownershlp Tenancy In common l Joint tenancy 1 Direct Coownershb l Tenancy by quot19 em39rely l l Condomlnlum l Cooperative l leiled liability col l ndrect Coownershb amp Corporatan Real estate Investment trust Forms of Direct Coownership Ex residence shared by multiple owners 0 All share the right of exclusive possession 0 They cannot obstruct each others use 0 They may hold different sizes of shares Tenacy in common Joint tenacy money goes to owners not heirs if die Tenacy by the entirety not on test Condominium Direct Coownership Joint Tenanc Survivorship Tenancy by the Entireties Tenancy in Common Forms of Direct Coownership Tenacy in common generic or normal form 0 Default form except in special cases 0 Essentially fee simple interest with multiple owners 0 Each owner can sell or mortgage their interest without disturbing the ownership form 0 Bad form for owning an operating business Joint tenacy right of survivorship restricts inheritance to heirs of the last surviving owner o Difficult to create and easily disrupted 0 Use is prevented or discouraged by law in some states Tenacy bythe entirety o Jointtenacyfor husband and wife 0 Simplifes effect of homestead if minor children are present 0 Protected against liens arisingfrom either spouse alone includingjudgments Right of Survivorship joint tenacy Condominium combines single ownership and tenacy in common 0 Created by condominium declaration o Bylaws define owner rights I Share of all obligations I Restrictions on sale or rental I Methods of altering bylaws o In substance creates an additional level of private government af39fectingthe owner 0 Histow of owners not understandingthe restrictions and obligations Direct Coownership Condominiums Undivided Ownership of Common Elements Through Tenancy in Comm Condo you only own half of interiorwalls and what s between them Townhome you own roof exterior inside 2 walls and plot of land you sit on Cooperative Corporation owns property Each owner holds shares and a proprietary lease no term Cannot mortgage individual interests Owners mutually liable for any specific liens Automatic Ownership from Marriage Modern Forms Elective share modern substitute for dower o Surviving spouse receives about onethird of all decedents personal property and instate real property 0 Must be chosen by explicit election within specified time o Adopted in some form by 25 states Automatic Ownership from Marriage modern forms Community property one half interest in all property acquired quotout of the fruits of the marriage 0 Not property owned before the marriage 0 Not gifts or inheritances to one spouse Found in states of Spanish tradition plus Louisiana and Wisconsin Growing in acceptance as a superior arrangement to elective share Retirement contributions are not considered separate property in LA spouse gets half of your retirement contribution Timeshare Range in quotqualityquot of ownership 0 Condominium share 0 Leasehold 0 License Choice of floating time intervals ie within 3 months and choice of resorts Industry with a questionable history Never a financial investment Ability of organization to deliver enduring service is key Issues in Rights to Water appendix to ch 3 Who owns the land under a body of water Who controls use of land under a body of water Who has the right to use the surface Who has the right to use the water itself Who has the right to use groundwater 3 types of water Nonnavigable navigability is determined whether or not the water is used for commerce lnterstate navigable state owns the land and corp of engineers control land and water lntrastate navigable state owns the land controls the land and water LA spillway Ocean Anything above mean high tide belongs to me Anything between mean high tide and mean low tide belongs to the state Anything below high tide belongs to the federal government Chapter 4 Conveying Real Property lnterests Reasons for Complexity in Conveying Real Estate Real property is a complex bundle of rights Rights to land are enduring rights available today depend on transactions long ago Land is a continuous surface 0 Boundaries not obvious or natural 0 Boundary errors always hurt someone Deeds the Principal Conveyance of Real Property Deed a special written contract for conveying a permanent interest in real property 0 Fee simple absolute 0 Life estate 0 Conditional fee 0 Easement 0 Oil mineral or water rights Must be in writing to be upheld by a court 0 Exclusion Short term lease less than 30 days Requirements of a Deed Grantor with signature and grantee Recital of consideration Words of conveyance Covenants Habendum clause Exceptions and reservations clause Description of land Acknowledgement Delivery Grantor and Grantee Grantor person or entity conveying real property 0 Must be of legal age 0 Must be legally competent 0 Must sign a deed Grantee recipient of real property 0 No need to be of legal age 0 No need to be competent 0 Only needs to be identifiable I Can be a kid but to sign a contract you must be of legal age and competency so that kid will have ha hard time getting a loan contract done Recital of Consideration and Words of Conveyance Recital of consideration a minimal statement suffices llfor 10 dollars and other good and valuable consideration Words of conveyance typically llDoes hereby grant bargain sell and convey 0 Functions I Affirms intention to convey real property I Determines type of deed LA is a disclosure state you must disclose all info 0 Grantee grantor price of sale 0 Other states don t have to disclose 0 Taxes are based on amount of sale I In TX they pay appraisers to figure out taxes because they don t disclose how much you paid Covenants promise Covenants legally binding promises Three main covenants o Covenant of seizin grantor has good title and right to convey it weakest covenant o Covenant against encumbrances no encumbrances except as noted in deed liens easements o Covenant of quiet enjoyment no one with a better claim to title strongest covenant Habendum Clause Defines interest being conveyed o llfor use as implies easement o llso long as implies conditional fee with reverter o lland hisher heirs and assigns forever implies fee simple absolute Requires drafting by a knowledgeable legal professional Says who is getting the property llyou re getting the property Exceptions and Reservations Clause and Descriptions Exceptions and Reservations clause 0 Deed restrictions 0 Clauses withholding mineral or oil rights 0 Creation of easement Property descriptions 0 Must be unambiguous and enduring 0 Three methods acceptable for public records I Metes and bounds I Plat lot and block number I Government rectangular survey 0 Unacceptable descriptions include street address and tax parcel number Acknowledgement and Delivery Acknowledgement confirmation that grantor acted voluntarily o Notarized or equivalent some states require witnesses Delivery observable verifiable intent that deed is to be given to grantor 0 Examples of failure of delivery I Deed found in a desksafety deposit box and handed to named grantee I Grantor s attorney hands deed to named grantee without explicit instructions to do so How Deeds Dif39fer Key Point no deed conveys rights that the grantor does not have Deeds dif39fer bythe number of covenants Types of Deeds General warranty deed al seizin and 39 o What you want Fee simple General warranty deed with covenant of quiet enjoyment Special warranty deed all three covenants but no encumbrances limited to grantor s ownership Deed of bargain and sale no covenants but still valid ownership 0 No covenant is attached so you don t know if someone else has an interest in it 39 quot 39 quot quot ant and makes 39 39 arantnr39sinterest 0 Giving up your interest in property no money transaction 0 Like if your name was left off a bill of sale quietclaim deed just adds your name to it Review of Deeds Covenants by Grantor Quiet No seizen39 En 39o ment Encumbrances Has valid Wlll defend N0 undisclosed tine grantee against restrictions or claims of others conflicting claims Type of Deed General Warranty Special Warranty Bargain and Sale Quitclaim No No No BEE Ways Titles Can Dif39fer Voluntary conveyance by deed 0 Ordinary sale and transfer oftitle Involuntaw conveyance by deed Probate distribution of estate 0 Bankruptcy Divorce settlement Condemnation Foreclosure OOOO Pubic Records Notice and Real Property Conveyance Doctrine of constructive notice cannot be bound b y what you cannot know Statue of Frauds contract must be written to be enforceable Recording statutes a contract recorded in public records is considered known Actual notice open continuous actual possession of property The Meaning of quotTitlequot Title a collection of evidence indicating a particular persons as the holder of the quotfeequot Title search examining public records to construct a llchain of title done by an attorney or abstractor to find history of sales for a property thru chain of title when everything clears you get covenant of quiet enjoyment Chain of title the sequence of conveyances passing ownership down through time Possible breaks in the chain of title clouds on titles Conveyance of only a partial interest Conveyance by adverse possession Fraudulent documents Inconsistent property descriptions 1 error in titles Inferior deed Faulty separation of mineral or water rights Missing spousal signature Title insurance protects your claim to interest Evidence of Title Evidence of title assurance of a good or marketable title Marketable title claim to title is regarded as free from reasonable doubt Two main forms of llevidence of title 0 Title abstract with attorney s opinion summary of all records in chain of title reviewed by an attorney for completeness 0 Title insurance commitment indemnifies grantor if challenge to title arises Two llEvidences of title Abstract wOpinion of Title I lTitle Insurance Commitment z Title Illsurance Binder We hereby promise to insure Marketable Title Laws State laws to shorten necessawtitle search 0 Root of title most recent title conveyance deed being a minimum number of years old 0 To be enforceable certain interests may need to be reasserted by documents no olderthan root oftitle I Restrictive covenants e easements 0 Title unbroken backto its root is normally regarded as marketable Questions Why can a single document a title never serve as proof of real property ownership 0 Can be fraudulent 0 Property may have already been sold so former owner doesn39t have interest in it anymore Methods of Land Description Metes and Bounds A sequence of directed distances 0 Compass directed quotwalk around property 0 Establishing point of beginning is critical Oldest form of acceptable land description Most flexible form Most difficult to interpret Should be made or interpreted only by surveyors Metes and Bounds Description Example 7 5 131301257 W 132mm N 0001059 W 1320 an jibe j if 7v 1 l l 1 T N aa ae n1 vv 1274 na lt7 Pomt of Beg1r1r11ng From the pawl 11 negmmng mum 39 36 m1nutes and West 11274 as test meme mm mm 1n m1nutes and 59 seconds West 1521 nu rear thence suum 89 36 m1nutes and 11 seconds 235111274 78 rear thence suum um 12 m1nutes and 57 seconds 1 521 nu feettuthe pmnt ufbegmmng Methods of Land Description Subdivision plat Lot and Block Number 7 Subdivision survey map in public records identifies lot by block and lot number 7 Lot and block number sufficient to describe parcel 7 Dominant form of urban land description 7 Map shows numerous features Subdivision Plat and Block Example lilath s A la 1 2 1 I1 11019 12 MtVesuviyj39Lgnec or 15 4 312 1 1 ll 31 lquot Malquot 39 gt239l an i 9 110 11 1 12M 1L14l 1i16 r E Q Josleena Way 13 1319 cmpw i 63mm 113 I a F quot1 391 1 g B J 7 1 5 5 l 3 2 1 1 1 3 gm 21 g l l 22 20 l 9 10 11 12 13 l 14 7 ir up ocategtelrmne ya 3922 23 24 lglm qlzs l25130 a1 l321 A 1 1 W111 1 A ll Methods of land Description Government Rectangular Survey most widely used 7 Basic reference points 0 Baseline latitude E to W measures N amp S 0 Principal meridian longitude N to S measures E amp W 7 Measures of distance 0 Range lines baselines Tier lines Meridian lines O 7 Units 0 Section 0 Township 0 Range Baselines and Principal Meridians of the United States Exhibit 43 Principal Meridians oi lhe Federal System 01 Reclangular Suvvays mm mumn smws mm mmmmm vr mnwl mmdlun mm hm HI Namurn mm mm mm Baselines and Principle Meridians of Louisiana 1 township 36 sections 1 section 1 square mile 1 square mile 640 acres 1 acre 43650 SF Sections in townships are labeled in snake form see below ATownship Range 26 E Range 27 E u m w E 6 5 4 3 2 1 7 8 9 10 11 12 18 17 16 15 14 13 19 20 21 22 23 24 30 29 28 27 26 25 u 31 32 33 34 35 36 V w 5 i missing graphic Disney World Graphic Disney world is in TS 23 South Range 27 East NE quarter of NW quarter Practice on page 88 in book 10 points on test Tier township in Louisiana Question on test will be Draw S half of NW quarter and E half of SW quarter of NW quarter of Section 14 TS 11S of Range 21 E and how many acres and square feet are in it OR describe the shaded area Subdividing a Section one mile E v of NW w an acres NE mm mm acres One mile mu ms s v umvv mm Dr SE 1mm 7n arrPs NE mm Dr SE 1mm an acres SmeSE14 quot nu acres Chapter 5 Government Controls amp Real Estate Features of Real Estate that Cause Market Distortions quotSpilloverquot effects from nearby land uses 0 Your value is affected by your neighbors o All this is is an externality something you have no effect over I Externalities can be positive or negative Uniqueness of location absolute monopoly Instability of surrounding land use Unknown quality or condition of existing structures Resulting Market Failures in Real Estate Monopoly 0 Utilities 0 quotHoldoutsquot in land assembly efforts roads other public uses I See this a lot in high profile corners like at Burbank and Lee Externalities o Spillover effects of land use for which initiator is not held accountable traffic congestion runoff smoke gases and particle emissions noise urban sprawl disorderly extension of urban infrastructure Incomplete information this is why it s important to get an inspection done 0 One important part is a PHASE 1 STU DY essentially it says is there anything that can be toxic or harmful to the environment or property Test the air water soil and good to go if everything s good if there s hesitation they go into phase 2 study then phase 3 study I Can be a problem if you re buying a convenience store or plantation with oil well under the ground 0 Construction quality hidden 0 Buyers unaware of structural risks of hurricanes etc maximum wind tolerance of structure safety of electrical or gas systems fire dangers Uncertainty of residential values 0 Effect quotweird structures nonresidential land uses students I Living in a high student population is high turnover no stability in the neighborhood Comprehensive Planning as a Solution to Market Failure Project future population growth Determine requirements for water and waste disposal Project needs for public services utilities streets schools parks and recreation safety Projected demand for various land uses public residential nonresidential Design compatible arrangement of needed land uses land use map Pictures from Ch 5 slides Challenges to Public Land Use Planning Changing notion of quotbest practice 0 Culdesacs or grid streets 0 Mixed density and use or containment of nonresidential use Limited actual experience to rely on less than 30 years Insufficient theory and information Inability to foresee the future well So we can in terms of urban planning Make things closer together more walkable mixed use more of an urban lifestyle Think about Shenandoa vs Perkins Rowe Traditional Planning vs New Urban Planning Traditional 0 Separated uses 0 Automobile oriented I Priority placed on easy ingress and egress 0 Uniform density 0 Culdesac hierarchy in neighborhoods New Urban 0 Mixed use 0 Public transportation 0 Pedestrian oriented I Sidewalks I Houses close to the street I Rear alleys I Grid streets with restricted traffic flows Look for pictures slides 1215 Traditional Land Use Controls Building Codes Older than zoning circa 1900 Issues of safety 0 Fire materials alarms electrical and gas systems 0 Sanitation plumbing water HVAC requirements 0 Injury design and strength Continue to evolve 0 Effect of Hurricane Andrew and 20042005 hurricanes 0 New technology ie smoke detectors 0 Changing perception of needs ie bedroom windows large enough to step through Traditional Land Use Zoning Zoning does nothing more than restrict what you can do with your property 0 Within zoning it tells you how to do it how to build your building what you can do there how many units can be on your property PUD planned unit development 0 New concept from 2004 0 You go up to a piece of property zoned A3 residential some very limited commercial use everything around it is zoned commercial C1 or C3 0 You go up to the board and request for a zoning change for conformance with the other businesses around you 0 So you come up with this PUD you will have retail use and office use in the front and put an apartment complex in the back I This way he doesn t have to go to the board or council with revision after revision SPUD small planned unit development less than 5 acres that s the only difference Gisbrgovcommaps Features of traditional zoning 0 Use classifications residential commercial industrial automotive Use districts zoning map Setback requirements quotBulkquot or density limits minimum lot size height limits maximum floor area ratio 000 Special use districts service stations hospitals churches private schools cemeteries Traditional Land Use Controls Subdivision Regulations Standards for streets sewers and water systems Adequate water supply for fire safety Adequate drainage and runoff retention Open spaces Lot layout Easements for utilities Traffic and pedestrian safety Traditional Land Use Controls Planning and Zoning Administration Planning and Zoning Commission created in ordinances just about every municipality has a zoning commission 0 Houston doesn t have any zoning requirement 5 h largest city in the US 0 Within Houston there s BelAire subcity which has zoning commissions in it and it s property values have grown at a slower rate than Houston s property values 0 A lot of people want zoning in these cities because they don t want to live next to a buisness Requested changes must 0 Be compatible with a comprehensive plan 0 Be justified if they require change in the comprehensive plan 0 Not have undue effect on surrounding land uses or the community Commission ultimately serves as advisory to elected officials Traditional Land Use Controls Board of Adjustment Reviews petitions for variances o Variance nothing more than your property won t conform to the zoning requirements you essentially need an exemption for that allowance often times it s parking Nonconforming use whenever you have a property that s been grandfathered into a zoning area but they don t conform to the current zoning requirements 0 Ex an apartment complex that was built on a rural piece of property zoned A2 where apartments aren t allowed now since it s already built it s grandfathered in and it s a nonconforming use as long as the property isn t destroyed and the business isn t shut down it can be a nonconform Decisions are final rather than advisory to the elected officials Only appeal is through the courts Traditional Land Use Controls Site Plan Review May be the same as planning and zoning commission Review subdivisions and most other building site plans 0 Public review neighbors and others 0 Public offices public safety fire police emergency vehicles utility officials school officials lnformal procedure allows criteria and rules to change with public pressure Most quottreacherousquot step in development Zoning Issues and Concepts Legality of zoning Village ofEucid vs Ambler Reality 1926 Nonconforming use use inconsistent with and precedent to zoning map 0 Cannot be substantially changed 0 Must be continuous 0 Can be amortized away ie billboards Variance exception to requirements due to hardship Exclusionary zoning unreasonable lot size inadequate provision for low and moderate income housing Newer Approaches to Land Use Controls Planned Unit Development 0 Mixed density No setback requirements 0 Open community spaces 0 Community facilities 0 Mixed uses 0 Negotiated contract with land use authorities Performance standards 0 Runoff limits 0 Noise and emission limits 0 Traffic limits 0 Tree removal restrictions More New Land Use Controls lmpact fees if you re building a property or renovating a home you must pay impact fees because your renovation will cause more costs to the municipal line water or sewer because of the renovation o The impact fee is supposed to be large enough to incur the costs that are not recoverable I So if you re expanding your house adding another 1000 feet the state will charge an impact fee of 1500 because over the cost of the lifetime there will be 1500 of costs that won t be presented in bills so you must pay for it up front 0 This also goes for streets more people will be driving on my street because I expanded my house or apartment complex 0 Favorite of economists in principle 0 Despised by many in the building community Growth Restrictions not in LA but in high dollar areas 0 Temporary moratoriums US Supreme Court refuses to review Petaluma Ca limit on the number of new housing units Also Boulder Co and Boca Raton Fl OOO Theyjust don t want any more development they development locked all land you can demolish a bldg and redevelop it but if you have empty land you can t use it With regards to value are you willing to pay more or less for land that s zoned higher than another zoning If your lot is A3 are you willing to pay more or less because it s A3 and everything else around it is C3 you will pay less for it because you will have to make up the cost for getting it to PU D Power of Eminent Domain aka Adverse protection Eminent domain right of government to acquire private land without the owner s consent for public use with due process and just compensation Let s say Rich s the government and Austin owns the piece of land Rich wants Rich goes to Austin to buy the land to make a park build a road or facilities so we take Austin s land 0 Rich would take Austin s land then resell it to someone to make retail development 0 This happened enough and they ticked off enough private users so now LA can t do that any more If the government takes your land and doesn t use it after a period of 10 years they can do whatever you want They can t take your land and immediately sell it to develop it 0 So they can t do it and it is illegal for the government to do it Condemnation legal procedure for exercising the right of eminent domain 0 Public use vs public purpose Just compensation based on highest and best use what your value was before less what your value is 0 now after they take it the difference is what they pay you Problems of excessive use lnverse condemnation where property owners can sue the government because they ve taken over someone elses property and it has affected your property Explain the diff between condemnation and inverse condemnation Eminent domain is a good real estate today topic Eminent Domain Controversy Concept of llpublic use expanded to llpublic purpose 0 US Supreme Court in 1954 allowed condemnation of llblighted areas for redevelopment 0 Michigan Supreme Court in 1981 allowed condemnation to enable GM manufacturing facilities Widespread subsequent condemnation of llblighted areas for private redevelopment driven by hunger for an increased property tax base US SC in Kelo v New London Ct 2005 allowed use of eminent domain to obtain nonblighted property for private redevelopment Most states have enacted legislation to control such use of eminent domain and Congress has enacted law to prevent application of Federal monies for such use Property Taxes Primary source of local government revenue Reliable and counter cyclical Many taxing authorities who can tax your property 0 City County Schools Improvement districts Transportation authorities Water management districts OOOOOO Anyone that the voters say can tax your property can tax your property I Done thru a tax bill Property Tax Exemptions Religious organizations Nonprofit organizations Educational institutions o If you don39t have to pay real estate taxes evenone who does pay taxes picks up the bill If you re a developer get a nonprofit business so you don t have to pay property taxes oooooo Determination of Tax Rate Total budgcl of quot Income from 7 Taxing Authority olher sources Tax rate 7 Total assessed Total value of value property exemptions or R EB T 0 T i VT R 65000000 25000000 r 2500000000 500000000 020 Or a tax rate of2 percent Or 20 mills Income comes from royalties sales taxes retail taxes income taxes any othertaxes not real estate Property exemption in LA if you own your home the first 75000 of your house is not taxed this is homestead exemption you can only get homestead exemption on 1 house o If you re house is 100K you39ll be taxed on 25K 0 Typically real estate is 1 ofthe market value ofthe real estate value evenyear 0 100K is the marketvalue o The assessed value is the market value x 10 I They do this because it makes the math a little cleaner less 039s to deal with Total market value 100 billion 75 million 999975 million 0 Assessed is above x 10 In the example 020 20 mills Louisiana tax authority google to find house taxes To find the amount of mills mills taxes assessed value x 1000 Typically in EBR it39s 110 mills So for Richard it39s 155464 taxes13900 x 1000 11184 mills 9 ifthis were a commercial property or rent house this would be the actual millage rate But since it39s the private property it39s 7331113900x1000 5274 mills 9 this is the homestead exemption millage or benefit 16736 appomattox Lookfor papenNork in notebook on test Mill real estate term applied to evew municipality rate x 10 11000 1 mill So for a 150K house 150001000 15 mills ComputingTaX Liability Market value 150000 Assessed value 135000 Less exemptions 25000 Taxable value Si 0000 Property Tax Calculation Taxing Authority Millage Rate Taxes Levied unly 858 4380 City 3 20 35200 School district 986 108460 Water mgt disirici 005 5 0 Total 72m 2373970 Ignore this calculation Special Assessments for a short term 30 years Special assessments tagtltes for specific improvements affecting a property 0 Street sewer etc 0 Usually charged on a perfront foot basis Example street improvements of 500 per runningfoot of street 0 For lot with 100 feet of frontage 100 X 5 X 500 25000 fa bunch of land owners want a park they get the land and donate the land to BREC and BREC makes a park out of it and those land owners get that tax Discussion question Issues with Property Tax Regressive high net worth individuals percentage wisewil pay less than lower income individuals percentage wise 0 Family makes 750K a year lives in 15M house will be payingtaxes on somethingthat39s thheir income 0 Family makes 120K and lives in a 360K house they re payingtaxes on somethingthat s 3Xtheir house 0 People at the bottom are paying more in regards to percents o In dollars people on top are paying more than people on bottom Uneven across geographic areas people just need to pull up their pants and suck it up people saying if I live in BR and in the rural areas outside BR is taxed less well they re not gettingall the benefits that baton rouge is Poorly administered supposed to be reassessed evew 4years causes your escrow to go up so your mortgage goes up 0 So the tax assessors don t reassess your property evew 4years to keep their political seat really good tax assessor does it evew 4 years 0 Property is usually reassessed when the house is resold Chapter 6 Market Determinants of Value Ways To Minimize Market Risk Avoid projects with a high market risk 0 Most hotels and motels 0 Restaurants and entertainment facilities Avoid projects with prospective major change 0 Lease rollover for major tenants 0 Major renovations Study urban markets Urban Real Estate Markets Derive from 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 Demand for Access The Gravity that Creates Cities Demand for access causes urban clustering Competition for access creates the patterns for urban land uses Gravity aka Synergy in RE with JampJ if you have diapers and you have baby powder there s synergy between the two products you can use them with each other to increase the market share with both Where Cities Occurred Preindustrial fortress or religious center Transition points in trade routes 0 From river to ocean New York New Orleans Hamburg Rotterdam o Intersection of rivers Pittsburgh St Louis 0 From water to rail New York Chicago Minneapolis St Louis 0 Fromm rail to rail Chicago Atlanta Natural resources 0 Mining San Fran Denver Pittsburgh 0 Oil Houston Dallas BeaumontPort Arthur Greatest Cities have Experienced Sequence of Bases Minneapolis and Chicago 0 Trapping and fur trade agriculture industrial service finance and control Pittsburgh 0 River trade coal and iron steel commerce and services research and health care Detroit 0 Fur and agricultural trade iron and steel automobiles Economic Base Economic Base all activities that bring income into a city 0 Local businesses that export more products than what it imports 0 GDP exports imports if you import more than what you export you have a deficit 0 Same thing with a city if you have to bring in more resources than what you send out you ll have a deficit not good 0 Export activities products or services provided to the outside world most manufacturing higher ed and research advanced health care 0 Activities that attract money retirement tourism Secondaw local activities activities that recirculate income in a city local government local merchants and services Economic Base Multiplier The idea as goes the base so goes the city Multiplier effect base income is respent producing additional income Multiplier effect is greater as city as I More isolated I More diversified I Larger o The base activity uses more local goods and services 5 Tomi mmniuniiy income In nfexpnrl dniisrs l is he Exparls bring dullars plus rcspem dollars inm me communin 2 Mosi is rcspcm on local goods 4 Some leaks and SEI39VICES quotngn inln 51ll 3 Some Ieaksquotthruugh uniside expenditures You have exports the money comes into the community those wages go to employees that goes into grocew stores some leaks out in retirement accounts and comes back around to the local government Indicators of an Economic Base to find out your economic base by the zipcode Quick indicators 0 USA Counties in profile 0 USA County and City Data Book More detailed indicator US Census Detailed Tables Supply Factors AffectingA Community Economic Base Laborforcecharacteristics 0 Special skills and experience 0 Education level 0 Unionization 0 Work ethic o Other Quality of life Leadership 0 Financial support 0 Government support subsidies land use regulation government affects your economic base vew much so Additional Supply Factors Industry economies of scale efficiencies of new production due to scale of local industry 0 Supply of specialized labor publishing specialties in New York aircraft specialties in Wichita computer software and design in quotsilicon valley performing arts in NY LA and Nashville 0 Supply of vendors and materials Agglomeration economies efficiencies in production due to multiple different local large scale industries airport service financial services and banking communication and media 0 Nothing more a larger scale of synergy with businesses o If you re an airplane manufacturer all suppliers will be in the same city I am because transportation costs are cheaper and creates a synergy 0 Fish markets amp processing plants and fish derivative products are down near the gulf that forms the agglomeration Implications of Industry and Agglomeration Economies Cities with industry economies may be more resistant to downturns due to cost advantage Cities with agglomeration economies may have long term advantages 0 lncubator for new businesses 0 Cost advantage for emerging industries The Shape of a City Demand for Access and Location Rent Let s say I m a high school grad who has a low income job 6 for 20 hours a week and work downtown I want to move downtown It takes me 20 minutes to get to work to and from Now let s say that I m a doctor and live very close to the sandwich artist I also want to move down town I average 500 an hour The doctor will be willing to pay more because his time is worth more Essentially the more you make and wherever you make it you should be willing to pay more to move closer to wherever you make your wage Assumptions for location rent bidrent model All employment and exchange is at city center One road to CBD with residential lots on both sides Residential lots are 100 feet wide Hourly wage is 20 Round trip travel to CBD is 20 mph One worker per household Households rent lots for motor homes OOOOOOOO Workers make 20 round trips per month to CBD Total of 318 households What workers bid to be closer O o What is the time cost of travel I At 20 mph with a wage of 20hr it s 1mile o How much time cost per month is saved by living 1 mile closer I Answer 20 round trips x 2 x 1 40 0 Conclusion workers will bid 40 per month or less to live one mile closer to CBD The lmplied Bid Rent Curve Bidrent 540 Distance rmm can can t nu 2m 3 ml What factors affect a bidrent curve Number of bidders commuters or firms Wage rate time cost of commuters Speed of travel Frequency oftrips BidRent Curves and Rent Gradients with Walkers Suppose 106 ofthe 318 houses have workers who walk to work 0 Walking speed 3 mph Effects 0 Walkers time cost per mile is 667 0 Walkers will pay 26667 per mile per month to be closer All walkers will always outbid drivers for any lot Rent Gradient with Drivers and Walkers Bid rem Zone chalkers 347 Zone of Drivers Distance from CBD 31 I mi 2 mi 3 mi Rent Gradients with Walkers and Doctors Suppose of 318 households 108 are walkers and 26 are doctors 0 Doctors commuting speed is 20 mph 0 Doctors wage is SZOOhour Effects 0 Doctors time cost per mile is 10 0 Doctors will pay 400 to live one mile closer Doctors will always outbid all others to be closerto the CBD Rent Gradientwith Drivers Walkers and Doctors BidI39m Zone of Medical Of ces 5380 Zone ofWalkcrs mo oi Zonc or Drivers 200 100 7 80 540 Distance from cm CBD 1 mi 2 mi 3 mi Rent Gradient with Medical Center outside CBD Doctors highest demand for access Pharmacies labs equipment vendors and other supporting activities high demand for access Residences of medical community Bid renl mums om Mctlluul CED Of ces Related Services l Onclucd Wale Remdcnumal Muncle Worm l an R gamma river 7 l Medical Dislancc Cmquot FromCBD CBD 1 ml 2 mi 3 mi Rent Gradient with Medical Center Outside CBD Effect All medically oriented firms and households outbid all drivers to CBD Medically oriented land use outbids some walkers to CBD Three zones of medical land use results 0 Doctors offices 0 Other medicalfirms o Residences of medical personnel MExample in notes BidRent Curves vs Reality of Urban Land Use Bidrent analysis explains how land uses are determined 0 Assumes households orfirms have one demand for access single linkage Realworld o Households and firms have many linkages 0 Competition for land use vastly more complex 0 Determination of land rent and land value is therefore more complex 0 Demand for access still is fundamental Problem with that is if you re salaried you won39t be paid anymore If you re self employed or you have a parttime job then it makes a difference If you re capped at 40 hours a week or salaried it doesn39t make a difference Three Observed Patterns of Urban Form they no longer hold so we don t care about them Burgess Concetric Circle Model 1923 Hoyt Sector Model 1939 Harris and Ulman Multinuclei model 1945 Observed Patterns of Urban Form Burgesss Concentric Model Industrial and Downtown Wa Transition Blue Cc ar White Collar Clerical Executive QPSA N Observed Patterns of Urban Form Hoyt Sector Model 1939 1 CBD 2 Wholesale and light manufacturing Lowerclass residence 3 4i Middleclass residence 5 Upper class residence Technical changes from 1920 to the present Automotive revolution 0 1920 one car per 13 persons 1930 one car per 5 people 2003 more than 1 car per driver Birth and advancement ofthe truck Expansion of highways I Half of all the roads were hard surfaced by 1940 I Interstate system beginning in 1955 0000 Production revolution Birth of the assembly line Horizontal ratherthan vertical processes Ef fect ofthe telephone on decentralization 0000 Recent decades I Automation I Robotics I Computercontrols Advances for offices and retailing o Airconditioning o Fluorescent lighting 0 Self servicing retailing rise of packaging and self advertising Data processing and communications Advances in telephones 0 Birth of computers 0 Explosion of cyberspace Effects of Technological Change on Urban Form Dispersion of employment and urban functions to suburbs Obsolescence of older structures 0 Verticalmanufacturingfacilities o Lowceiling small depth buildings 0 NonAC office and retail bldgs Vew slow but profound change in streets and other aspects of transportation system Variations on ntraurban Location Patterns Convenience goods and services 0 Users tend to go to the closest source I Sandwich shops Barber and beauty shops Drug stores Convenience grocew store Automotive service stations Neighborhood shopping centers I Other 0 Locational pattern tends toward uniform dispersion I Distance of separation depends on customer concentration and minimum required market size Idealized location Pattern of convenience goods and services Circles are maximum market perimeterfor each service provider Straight lines demarcate equal access ridges between providers Variations on ntraurban Location Patterns Comparison goods and clustering 0 Buyers want more to compare many goods 0 Rationale for shopping malls Industw economies of scale and clustering o Suburban of39fice parks 0 Research universities 0 Tourist attractions 0 Other Some implications for Real Estate Market analysis Location within the urban matrix is the most meaningful notion of location 0 Distances from relevant activities 0 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 vew slowly over many years


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