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Principles of real estate 1 homework answers

09/01/2021 Client: saad24vbs Deadline: 6 Hours

Eleventh EDITION


REAL ESTATE PRINCIPLES


CHARLES F. FLOYD and MARCUS T. ALLEN


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This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional advice. If legal advice or other expert assistance is required, the services of a competent professional should be sought.


President: Dr. Andrew Temte Chief Learning Officer: Dr. Tim Smaby Executive Director, Real Estate Education: Melissa Kleeman-Moy Development Editor: Julia Marti


REAL ESTATE PRINCIPLES ELEVENTH EDITION ©2014 Kaplan, Inc. Published by DF Institute, Inc., d/b/a Dearborn Real Estate Education 332 Front St. S., Suite 501 La Crosse, WI 54601


All rights reserved. The text of this publication, or any part thereof, may not be reproduced in any manner whatsoever without written permission from the publisher.


Printed in the United States of America ISBN: 978-1-4754-2173-6 / 1-4754-2173-7 PPN: 1515-0111


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DEDICATION


This book is dedicated to R. W. Barber


a man of the land and


C. O. Floyd a man of business. —Charles F. Floyd


This book is dedicated to Rhonda, Melanie, and Issabella.


—Marcus T. Allen


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v


c o n t e n t s


p r e fa c e xi i i r e a l e s tat e t o d ay f e at u r e s xvi i


c h a p t e r 1


Why Study Real Estate? xx Chapter Preview 1


The Role of Real Estate Studies in Business Education 2


Personal and Business-Related Real Estate Decisions 2


Organization of This Book 3


Special Characteristics of Real Estate 4


The Economic Importance of Real Estate 9


The Real Estate Industry: Career Opportunities 10


Chapter Review 13


Key Terms 14


p a r t o n e


Real Estate Legal Analysis 15


c h a p t e r 2


Property Rights and Legal Descriptions 16 Chapter Preview 17


Real versus Personal Property 18


Fixtures 18


Mineral and Air Rights 20


Water Rights 20


Estates in Land 23


Concurrent Estates 29


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vi Contents


Condominium Ownership 31


Cooperative Ownership 32


Time-Shares 32


Legal Descriptions 32


Chapter Review 43


Key Terms 45


Study Exercises 46


Further Reading 47


c h a p t e r 3


Private Restrictions on Ownership 48 Chapter Preview 49


Covenants, Conditions, and Restrictions 50


Liens 54


Easements 58


A Relatively New Type of Easement 64


Profit a Prendre 64


Encroachments 64


Adverse Possession 66


Chapter Review 67


Key Terms 68


Study Exercises 68


c h a p t e r 4


Public Restrictions on Ownership 70 Chapter Preview 71


The Property Tax 72


Power of Eminent Domain 74


Police Power 75


The Comprehensive General Plan 76


Zoning 76


Chapter Review 94


Key Terms 96


Study Exercises 96


Further Reading 97


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Contents vii


c h a p t e r 5


Deeds and Title Examination 98 Chapter Preview 99


Deeds 100


Title Examination 107


Chapter Review 114


Key Terms 115


Study Exercises 115


Further Reading 115


c h a p t e r 6


Contracts and Title Closings 116 Chapter Preview 117


Necessary Elements of a Contract 118


Breach of Contract 120


Contract Contingencies 121


Real Estate Sales Contracts 122


Option-to-Buy Contracts 128


Contract for Deed 129


Some Basic Negotiation Strategies 129


Title Closings 130


Chapter Review 137


Key Terms 138


Study Exercises 139


Further Reading 140


c h a p t e r 7


Real Estate Leases 142 Chapter Preview 143


Leases 144


The Landlord-Tenant Relationship 146


Chapter Review 155


Key Terms 157


Study Exercises 157


Further Reading 158


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viii Contents


p a r t t w o


Real Estate Service Industries 159


c h a p t e r 8


Real Estate Brokerage 160 Chapter Preview 161


The Real Estate Sales Process 162


Real Estate Brokers and Sales Associates 163


Licensing of Sales Associates and Brokers 163


Real Estate Brokerage Regulation 164


Legal Aspects of the Broker-Client Relationship 164


The Role of Real Estate Brokers 165


The Creation of Agency Relationships 166


Duties and Rights Under Agency Relationships 168


Termination of Agency Relationships 171


Types of Brokerage Firms 174


Broker and Sales Associate Compensation 175


Chapter Review 176


Key Terms 177


Study Exercises 178


c h a p t e r 9


Real Estate Appraisal 180 Chapter Preview 181


Appraisal Regulatory Environment 182


What Is Value? 184


Some Key Appraisal Principles 186


The Appraisal Process 187


The Sales Comparison Approach 192


The Cost Approach 196


The Income Approach 199


Chapter Review 201


Key Terms 203


Study Exercises 203


Further Reading 205


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Contents ix


c h a p t e r 10


Property and Asset Management 206 Chapter Preview 207


The Role of the Property Manager 208


The Management Agreement 208


Functions of a Property Manager 209


The Role and Function of Asset Managers 215


Chapter Review 216


Key Terms 217


Study Exercises 217


Further Reading 217


p a r t t h r e e


Real Estate Market Analysis 219


c h a p t e r 11


Residential Land Uses 220 Chapter Preview 221


Types of Residential Development 222


Market and Feasibility Analysis 229


Financial Feasibility Analysis 237


The Importance of Market Analysis 237


Chapter Review 237


Key Terms 238


Study Exercises 239


Further Reading 239


c h a p t e r 12


Commercial and Industrial Land Uses 240 Chapter Preview 241


Shopping Center Development 242


Evolution of the Shopping Center 244


The Shopping Center Development Process 246


Office Buildings 249


Industrial Parks and Distribution Facilities 252


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x Contents


Analysis of Industrial Sites 254


Hotel, Motel, and Resort Developments 254


Chapter Review 256


Key Terms 257


Study Exercises 258


Further Reading 258


c h a p t e r 13


Understanding Real Estate Market Dynamics 260 Chapter Preview 261


Owner-Occupied Residential Real Estate Markets 262


Example: Fort Lauderdale, Florida 265


Commercial Real Estate Markets 267


Real Estate Asset Markets 270


Tying Together the Space and Asset Markets 272


Preparing a Commercial Real Estate Market Analysis 272


Chapter Review 275


Key Terms 276


Study Exercises 276


Further Reading 277


c h a p t e r 14


Urban and Regional Economics 278 Chapter Preview 279


Economic Factors Influencing the Growth and Decline of Cities 280


The Location of People 283


Analyzing Local Real Estate Demand 284


The Bid-Rent Curve and the Concept of Highest and Best Use 286


Models of Urban Growth Patterns 287


The Importance of Public Facilities in the Growth Process 291


The Dynamics of Neighborhood Change 293


Urban Form: A Synthesis 297


Chapter Review 298


Key Terms 299


Study Exercises 299


Further Reading 300


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Contents xi


c h a p t e r 15


Home Purchase Decisions 302 Chapter Preview 303


The Rent-or-Buy Decision 304


How Much Can You Afford? 310


Choosing a Property 312


Making and Closing the Deal 316


Selling the Home 318


Chapter Review 319


Study Exercises 320


p a r t f o u r


Real Estate Finance and Investment Analysis 321


c h a p t e r 16


Residential and Commercial Property Financing 322 Chapter Preview 323


Understanding the Mortgage Concept 324


U.S. Mortgage Practice 325


Typical Provisions of a Promissory Note 325


Understanding the Foreclosure Process 327


Structure of the U.S. Housing Finance System 330


Mortgage Market Participants 336


Federal Legislation Affecting Mortgage Lending 338


Mortgage Underwriting 340


Sources of Capital in Commercial Property Markets 344


Commercial Financing Underwriting Criteria 349


Chapter Review 349


Key Terms 351


Study Exercises 351


Further Reading 353


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xii Contents


c h a p t e r 17


Risk, Return, and the Time Value of Money 354 Chapter Preview 355


The Relationship Between Risk and Return 356


Time Value of Money Formulas 358


Financial Decision Rules: NPV and IRR 368


Chapter Review 370


Key Terms 370


Study Exercises 370


c h a p t e r 18


Mortgage Mechanics 372 Chapter Preview 373


Mortgage Mechanics 374


Understanding the Fixed-Rate Mortgage: Prepayment 378


Understanding the Fixed-Rate Mortgage: Refinancing 382


Understanding the Fixed-Rate Mortgage: Discount Points and Effective Interest Rates 383


Alternatives to the Fixed-Rate Mortgage 386


Chapter Review 390


Key Terms 390


Study Exercises 391


Further Reading 393


c h a p t e r 19


Analyzing Income-Producing Properties 394 Chapter Preview 395


Advantages of Real Estate Investment 396


Financial Decision Making 398


The Discounted Cash Flow Model 401


Chapter Review 410


Key Terms 411


Study Exercises 411


Further Reading 412


g l o s s a ry 413 a p p e n d i x 431


i n d e x 437 c r e d i t s a n d a c k n o w l e d g m e n t s 447


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xiii


p r e f a c e


Welcome to the eleventh edition of Real Estate Principles! As one of the most popular and well-respected texts in college-level real estate education, this book has served as the framework for a practical and rigorous learning experience for intro- ductory real estate students at schools across the nation since its first edition was published in 1981. This edition continues that tradition by incorporating the latest industry advances and education technologies into a comprehensive, student-friendly presentation of the real estate “body of knowledge.” We are absolutely convinced that students who master the material presented in this text will become better-informed real estate market participants whether their primary real estate interests lie in con- sumption, investment, brokerage, appraisal, law, property and asset management, or any combination of these aspects of real estate.


| pedagogical devices ______________________________________


For students, the book contains the following pedagogical devices designed to enhance their learning experience:


■■ Each chapter begins with a Chapter Preview that clearly sets forth the learning objectives.


■■ The Key Terms discussed in each chapter appear in boldface for emphasis. These terms are succinctly defined in the end-of-book Glossary.


■■ Many tables, figures, and photographs are provided throughout the text to help readers visualize the topics and incorporate them in their knowledge base.


■■ Each chapter ends with a Chapter Review that concisely summarizes the key concepts.


■■ Thought-provoking review exercises are provided at the end of each chapter.


■■ Suggested reading lists for each chapter are included to direct students who wish to learn more about specific concepts to additional sources of information, including books, academic journals, practitioner journals, newspapers, magazines, and internet sites.


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xiv Preface


| instructor support _____________________________________


For instructors, we have developed an extensive collection of support materials that can be easily downloaded (with the proper password) from the publisher’s web- site at www.dearborn.com. The materials include


■■ detailed lecture notes in Microsoft PowerPoint and Microsoft Word format for each chapter (for use with a computer display projector or as transparency slides);


■■ assignment exercises for each chapter (with answers); and


■■ multiple-choice, true-false, and short-answer questions by chapter.


Readers familiar with previous editions of this text will be pleased to find that this edition continues to incorporate many of the special features from previous edi- tions that enhance the students’ learning experiences. Close-Ups, Legal Highlights, People Profiles, and Case Studies are liberally sprinkled throughout the book to dem- onstrate how real estate principles can be observed and applied in the “real world.”


| flexible pathways through the text ______________________


Because real estate is such a dynamic and diverse discipline, we have purpose- fully designed Real Estate Principles in such a way that instructors who wish to approach the material from their own preferred direction can do so with relative ease. Each chapter can be treated as a stand-alone learning module within the real estate body of knowledge. While we recommend presenting the material in the chapter order provided for general business students, an instructor who wishes to focus on finance and investment analysis issues can easily shift Chapters 16 through 20 to the beginning of the semester (after Chapter 1) to allow adequate time for in-depth cov- erage. Or an instructor who wishes to focus on real estate economics might consider following the first chapter with Chapters 11 through 15. We would be pleased to get feedback from instructors describing how they choose to sequence the chapters in their courses.

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