Real Estate Principles: A Value Approach 6th Edition
- Length: 800 pages
- Edition: 6
- Language: English
- Publisher: McGraw Hill Higher Education
- Publication Date: 2020-10-01
- ISBN-10: 1260013936
- ISBN-13: 9781260013931
- Sales Rank: #5281568 (See Top 100 Books)
Real Estate Principles: A Value Approach demonstrates how value is central to virtually all real estate decision-making. Students using Ling and Archer should finish the course with a value-oriented framework and a set of valuation and decision making tools that can be applied in a variety of real-world situations. The key to making sound investment decision is to understand how property values are created, maintained, increased or destroyed.Since the launch of Real Estate Principles: A Value Approach, significant and lasting changes have come upon the world of real estate. This is very true in real estate finance and capital sources where most of the traditional lenders have been transformed or displaced, giving way to a radically different set of players in mortgage finance. There has been change with profound and far-reaching implications in a world where it is understandable that property values can go down as well as up. This realization will color every aspect of real estate investment, finance and transactions for the foreseeable future.
Cover Title Copyright Dedication About the Authors Brief Table of Contents Preface Main Features End-of-Chapter Features Connect Contents Part 1 Setting the Stage 1 The Nature of Real Estate and Real Estate Markets Introduction Real Estate: Some Basic Definitions Real Estate: A Tangible Asset Real Estate: A Bundle of Rights Real Estate: An Industry and Profession Real Estate and the Economy Land Use in the United States Real Estate and U.S. Wealth Real Estate Markets and Participants User, Capital, and Property Markets The Role of Government The Interaction of Three Value-Determining Sectors The Production of Real Estate Assets Characteristics of Real Estate Markets Heterogeneous Products Immobile Products Localized Markets Segmented Markets Privately Negotiated Transactions with High Transaction Costs Summary Part 2 Legal and Regulatory Determinants of Value 2 Legal Foundations to Value Introduction The Nature of Property The Nature of Rights Real Property and Personal Property: The Problem of Fixtures The Real Property Bundle of Rights Possessory Interests (Estates) Nonpossessory Interests Forms of Co-Ownership Indirect Co-Ownership Through a Single Entity Direct Co-Ownership Timeshare Rights Related to Water Rights to Oil, Gas, and Minerals Summary 3 Conveying Real Property Interests Introduction Deeds Requirements of a Deed Types of Deeds Modes of Conveyance of Real Property Voluntary Conveyance by a Deed Involuntary Conveyance by a Deed Voluntary Conveyance Without a Deed Involuntary Conveyance Without a Deed Real Property Complexity and Public Records The Doctrine of Constructive Notice Statute of Frauds Recording Statutes Actual Notice Title Title Search, Title Abstract, and Chain of Title Evidence of Title Land Descriptions Metes and Bounds Subdivision Plat Lot and Block Number Government Rectangular Survey Summary 4 Government Controls and Real Estate Markets Introduction The Power of Government to Regulate Land Use Monopolies, Externalities, and Other Market Distortions Traditional Methods of Land Use Control Building Codes Zoning Subdivision Regulations Zoning and Planning Administration The Revolution in Land Use Controls: Planning, New Tools Comprehensive Planning: The Idea and Elements The Elements of Planning Challenges to Comprehensive Planning Modern Tools of Land Use Control Environmental Hazards Types of Hazardous Materials Implications for Real Estate Investors The Government’s Power of Eminent Domain Public Use or Public Purpose Just Compensation Inverse Condemnation and Regulatory Takings The Power of Government to Tax Real Property Mechanics of the Property Tax Determining a Jurisdiction’s Budget and Tax Rate Tax-Exempt Properties Homestead and Other Exemptions Calculating Tax Liability Special Assessments Nonpayment of Property Taxes Criticisms of the Property Tax Overview of Restrictions on Real Property Ownership Summary Part 3 Market Valuation and Appraisal 5 Market Determinants of Value Introduction Market Misjudgments in Real Estate Minimizing Market Errors The Creation, Growth, and Decline of Cities Where Cities Occur The Economic Base of a City Resources of a City: The Supply Side of Urban Growth The Shape of a City Demand for Proximity and Bid-Rent Curves Bid-Rent Curves, Urban Land Uses, and Land Value Contours Changing Transportation, Changing Technology, and Changing Urban Form Differing Location Patterns of Urban Land Uses Convenience “Goods” and Central Place Patterns Comparison Goods and Clustering Industry Economies of Scale and Clustering The Role of Urban Analysis in Real Estate Decisions Summary 6 Forecasting Ownership Benefits and Value: Market Research Introduction Market Research: Slipperiest Step in Real Estate Valuation Market Segmentation Real Estate Market Research as Storytelling The Beginning Point: A Market-Defining Story Initial Collection of Data First Analysis Refining the Research A Reverse to Conventional Market Research Three Important Techniques in Market Analysis Three Examples of Market Research Market Research Example 1: Elysian Forest, a Planned Unit Development Market Research Example 2: Palm Grove Office Complex Market Research Example 3: Plane Vista Apartments Some Final Notes on the Process of Market Research Improving One’s Capacity in Real Estate Market Research Market Projections and Real Estate Cycles Some Tools of Market Research Geographical Information Systems (GIS) Psychographics Survey Research Summary 7 Valuation Using the Sales Comparison and Cost Approaches Introduction Market Value, Investment Value, and Transaction Prices The Appraisal Process Identify the Problem Determine the Scope of Work Collect Data and Describe Property Perform Data Analysis Determine Land Value Apply Conventional Approaches to Estimate Market Value Reconcile Indicated Values from Three Approaches Report Final Value Estimate Traditional Sales Comparison Approach Comparable Sales Data Sources of Market Data Adjustments to Comparable Property Transaction Prices Types of Adjustments Sequence of Adjustments A Note on the Selection of Comparables and Adjustments Reconciliation to an Indicated Value Estimate The Cost Approach Estimating Cost Accrued Depreciation Final Reconciliation Summary 8 Valuation Using the Income Approach Introduction Direct Capitalization Versus Discounted Cash Flow Estimating Net Operating Income Potential Gross Income Effective Gross Income Operating Expenses Capital Expenditures Net Operating Income Using Direct Capitalization for Valuation Abstracting Cap Rates from the Market Understanding Capitalization Rates Income Multipliers Using Discounted Cash Flow Analysis for Valuation A Word of Caution Estimating Future Sale Proceeds Valuing Future Cash Flows Other Approaches Final Reconciliation Valuing Partial and Other Interests Summary Part 4 Financing Home Ownership 9 Real Estate Finance: The Laws and Contracts Introduction The Note Interest Rate and Interest Charges Adjustable Rates Payments Term Right of Prepayment Prepayment Penalties Late Fees Personal Liability Demand Clause Inclusion of Mortgage Covenants by Reference The Mortgage or Deed of Trust Description of the Property Insurance Clause Escrow Clause Acceleration Clause Due-on-Sale Clause Hazardous Substances Clause and Preservation and Maintenance Clause Deed of Trust When Things Go Wrong Default Nonforeclosure Responses to Default Foreclosure Deficiency Judgment The Effect of Default on the Borrower Judicial Foreclosure Versus Power of Sale Bankruptcy and Foreclosure Acquiring a Property with an Existing Debt Real Estate Debt Without a Mortgage Regulation of Home Mortgage Lending Equal Credit Opportunity Act Truth-in-Lending Act Real Estate Settlement Procedures Act Home Ownership and Equity Protection Act The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 Other Laws Regulating Discrimination in Home Mortgage Lending Summary 10 Residential Mortgage Types and Borrower Decisions Introduction The Primary and Secondary Mortgage Markets Prime Conventional Mortgage Loans Forms of Prime Conventional Mortgages Private Mortgage Insurance Adjustable Rate Mortgages Government-Sponsored Mortgage Programs FHA-Insured Loans VA-Guaranteed Loans Other Mortgage Types and Uses Purchase-Money Mortgage Home Equity Loan Reverse Mortgage Home Mortgage Adventurism Interest-Only Mortgage and Balloon Mortgages Hybrid ARM Option ARM Subprime and Alt-A Loans Subprime Loans Alt-A Loans Qualified Mortgages The Borrower’s Mortgage Loan Decisions Mortgage Choice Loan Size The Refinancing Decision The Default Decision Summary 11 Sources of Funds for Residential Mortgages Introduction The Market for Home Mortgage Loans The Revolution in Home Mortgage Finance The Rise of a World Economy and The Demise of the Thrifts The Transformation of Commercial Banks Mortgage Banking and Mortgage Brokerage Mortgage Banking Mortgage Brokers The Secondary Market for Residential Mortgages Mortgage-Backed Securities Purchasers of Residential Mortgages in the Secondary Market Ginnie Mae (GNMA) Fannie Mae Freddie Mac The Importance and Status of Fannie Mae and Freddie Mac Private Conduits Federal Home Loan Banks Other Secondary Market Purchasers The Big Picture of Home Mortgage Lending: Four Different Channels Where Does a Borrower Find a Home Loan? The Lender’s Mortgage Loan Decisions Traditional Home Mortgage Underwriting Modern Home Mortgage Underwriting Ability-to-Repay Standard Cash Down Payment Requirement Recent Underwriting Failures Home Financing for Marginal Borrowers Affordable Housing Loans Subprime Lending Summary Part 5 Brokering and Closing the Transaction 12 Real Estate Brokerage and Listing Contracts Introduction: Brokerage—The Best-Known Type of Real Estate Business Real Estate Brokers as Market Facilitators Economic Rationale for Employing a Broker Law of Agency Types of Agents Fiduciary Responsibilities Real Estate Agents Problems in Real Estate Agency Relationships and Disclosures Transaction Brokers Licensing of Real Estate Brokers and Salespersons Brokerage Licensing Administration How to Obtain a Real Estate License License Law Infractions Designations in Sales and Brokerage The Marketing Function Market Segmentation and Specialization and Service Commercial Brokerage Residential Brokerage International Aspects of Brokerage Listing Contracts Types of Listing Contracts Open Listing Exclusive Agency Listing Exclusive Right of Sale Listing Innovations in Brokerage Buyer Brokerage New Listing Services and “Discount” Brokerage Listing Contract Provisions Termination of a Listing Contract Splitting the Commission Summary 13 Contracts for Sale and Closing Introduction: The Most Important Document in Real Estate Rights and Obligations of Sellers and Buyers Requirements of a Contract for Sale Competency of the Parties to Act Lawful Intent of the Parties An Offer and an Acceptance Consideration No Defects to Mutual Assent A Written Real Estate Contract Proper Description of the Property Legal Title Versus Equitable Title The Form of the Contract for Sale Simple Contract Standard Form Contracts Components of a Form Contract Contracts with Contingencies Assignment Remedies for Nonperformance Escrow Closing and Closing Statements Electronic Documents Role of the Brokers Role of the Lenders RESPA, TILA, and the Dodd–Frank Act Preparation of Closing Statements The Continuing Story of a Sale Loan Estimate Steps Before Closing Steps at Closing and the Closing Disclosure Summary Part 6 Time, Opportunity Cost, and Value Decisions 14 The Effects of Time and Risk on Value Introduction The Time Value of Money The Timeline Terminology Equations, Calculators, and Spreadsheets Compounding Operations Discounting Operations Yields and Internal Rates of Return Value and Risk Determining Required Returns Comparing Investment Values to Acquisition Costs Summary 15 Mortgage Calculations and Decisions Introduction Basic Computations Payments Loan Balance Lender’s Yield Effective Borrowing Cost (EBC) Up-Front Costs, Holding Period, and Effective Borrowing Cost Fixed-Rate Mortgages Level-Payment, Fully Amortized Mortgages The Choice of Loan Term: A Question of Present Value Alternative Amortization Schedules Adjustable Rate Mortgages The Mechanics of Adjustable Rate Mortgages Initial Adjustment Periods Rate Caps Other Options Summary Part 7 Financing and Investing in Commercial Real Estate 16 Commercial Mortgage Types and Decisions Introduction Loan Documents and Provisions The Note The Mortgage Common Types of Permanent Mortgages Balloon Mortgages Restrictions on Prepayments Alternative Financing Arrangements Floating-Rate Loans Participation Mortgages Second Mortgages and Mezzanine Financing Bridge Loans Government-Sponsored Programs The Borrower’s Decision-Making Process Typical Loan Terms Loan Size Financial Risk Increased Variability of Equity Returns from Leverage The Prepayment and Default Decisions The Permanent Loan Application and Approval Process Loan Submission Package and Application From Loan Application to Closing Maximum Loan Amount Land Acquisition, Development, and Construction Financing Summary 17 Sources of Commercial Debt and Equity Capital Introduction How Large Is the U.S. Commercial Real Estate Market? Forms of Ownership for Pooled Equity Investments General Partnership Limited Partnership C Corporation S Corporation Limited Liability Company Optimal Ownership Form Ultimate Equity Investors in Commercial Real Estate Direct Investment in Commercial Real Estate Investment in Commercial Real Estate through Intermediaries Institutional Versus Noninstitutional Properties and Investors Real Estate Investment Trusts Sources of Commercial Real Estate Debt Development and Construction Lending A Closer Look at Real Estate Investment Trusts The Importance of Public Real Estate Markets REIT Management Measuring REIT Income REIT Valuation REIT Investment Performance Summary 18 Investment Decisions: Ratios Introduction Investment Decision Making Centre Point Office Building Example Treatment of Capital Expenditures Effects of Debt Financing on Cash Flows Why Do Investors Borrow? Effect on Initial Equity Investment Effect on Cash Flows from Annual Operations Evaluating the Cash Flow Estimates Partnerships and Other Direct Forms of Ownership Effects of Income Taxes Single-Year Investment Criteria Profitability Ratios Multipliers Financial Risk Ratios Operating Expense Ratio Loan-to-Value Ratio Debt Coverage Ratio Debt Yield Ratio Limitations of Ratio Analysis Summary 19 Investment Decisions: NPV and IRR Introduction Investment Valuation Versus Market Valuation Investment Valuation Using Discounted Cash Flow Models Centre Point Office Building Example Levered Versus Unlevered Cash Flows Effect of Leverage on Cash Flow from Sale Net Present Value Internal Rate of Return Comparing Net Present Value and the Internal Rate of Return The Impact of Leverage on Expected Returns The Impact of Leverage on Risk Income Taxes and Investor Cash Flows Effect of Taxes on Discount Rates Effect of Taxes on Net Present Value and the Internal Rate of Return More Detailed Cash Flow Projections Varying the Assumptions Summary 20 Income Taxation and Value Introduction Objectives and Implementation of U.S. Tax Law Comparing the Taxation of Individuals and Corporations Four Classes of Real Property Income Subject to Taxation Income Tax Rates Estimating Tax Liabilities from Operations Cash Calculation versus Tax Calculation Operating Expenses versus Capital Improvements Costs of Mortgage Financing Depreciation Deductions Tax Credits Centre Point Office Building: Taxes from Operations What Is a Tax Shelter? Estimating Tax Liabilities from Sale Fully Taxable Sale Centre Point Office Building: Taxes Due on Sale Net Benefits of Tax Depreciation Effect of Taxes on Values and Returns Complications Caused by Alternative Ownership Forms Tax Deferral Strategies Tax Factors Affecting Homeowners Summary Part 8 Creating and Maintaining Value 21 Enhancing Value Through Ongoing Management Introduction Owners as Managers Functions of a Property Manager Marketing the Property Selecting Tenants Signing Leases Collecting Rent Complying with Landlord–Tenant Laws Maintaining Tenant Relations Communicating with Owners Repairing and Maintaining the Premises Property Management Agreements Management Fees Professional Associations and Designations Asset Management Asset Management Functions Performance Evaluation and Compensation A Closer Look at the Decision to Improve or Alter a Property Abandonment, Demolition, and Reuse Managing Corporate Real Estate Assets Summary 22 Leases and Property Types Introduction Essential Elements of a Lease Negotiated Lease Provisions Use of the Premises Lease Term Rental Payments Responsibility for Operating Expenses Concessions Alterations and Improvements Assignment and Subletting Lease Options Other Common Clauses Effective Rent Broader Lease Considerations Residential Rental Properties and Leases Common Lease Provisions of Residential Rental Properties Office Properties and Leases Defining Rentable Space in Office Properties Common Lease Provisions of Office Properties Retail Properties and Leases Defining Leasable Area in Retail Properties Common Lease Provisions of Retail Properties Industrial Properties and Leases Common Lease Provisions of Industrial Properties Hospitality Properties Ground Leases Summary 23 Development: The Dynamics of Creating Value Introduction The Process of Development Establishing Site Control Feasibility Analysis, Refinement, and Testing Obtaining Permits Design Financing Construction Marketing and Leasing Operation The “Numbers” of Development What Is It Like to Be a Developer? What Does It Take to Enter Development? Summary Glossary Index
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