Real Estate Principles: A Value Approach, Fifth Edition
By David C. Ling and Wayne R. Archer
Brief Table of Contents
p a r t 1 SETTING THE STAGE 1
1 The Nature of Real Estate and Real Estate Markets 1
p a r t 2 LEGAL AND REGULATORY DETERMINANTS OF VALUE 18
2 Legal Foundations to Value 18
3 Conveying Real Property Interests 45
4 Government Controls and Real
Estate Markets 69
p a r t 3 MARKET VALUATION AND APPRAISAL 99
5 Market Determinants of Value 99
6 Forecasting Ownership Benefits and Value: Market Research 129
7 Valuation Using the Sales Comparison and Cost Approaches 160
8 Valuation Using the Income Approach 191
p a r t 4 FINANCING HOME OWNERSHIP 217
9 Real Estate Finance: The Laws and Contracts 217
10 Residential Mortgage Types and Borrower Decisions 244
11 Sources of Funds for Residential Mortgages 273
p a r t 5 BROKERING AND CLOSING THE TRANSACTION 305
12 Real Estate Brokerage and Listing Contracts 305
13 Contracts for Sale and Closing 339
p a r t 6 TIME, OPPORTUNITY COST, AND VALUE DECISIONS 384
14 The Effects of Time and Risk on Value 384
15 Mortgage Calculations and Decisions 410
p a r t 7 FINANCING AND INVESTING IN COMMERCIAL REAL ESTATE 430
16 Commercial Mortgage Types and Decisions 430
17 Sources of Commercial Debt and Equity Capital 455
18 Investment Decisions: Ratios 483
19 Investment Decisions: NPV and IRR 503
20 Income Taxation and Value 523
p a r t 8 CREATING AND MAINTAINING VALUE 555
21 Enhancing Value through Ongoing Management 555
22 Leases and Property Types 578
23 Development: The Dynamics of Creating Value 604
Glossary 633
Index 648
Preface
The study and practice of real estate draws on a multitude of disciplines including architecture, urban and regional planning, building construction, urban economics, law, and finance. This diversity of perspectives presents a challenge to the instructor of a real estate principles course. Depending on their backgrounds and training and on the interests of the students, some instructors may choose to emphasize the legal concepts that define and limit the potential value of real estate. Other instructors may focus more on licensing and brokerage issues (popular topics with many students) or on the investment decision-making process. Still others may feel that real estate market and feasibility analysis should be the core topics in a principles class. In short, one of the difficulties in teaching an introductory real estate course is that there appear to be too many “principles.” The critical question thus becomes: What framework should be used to teach these principles?
Although the subject of real estate can be studied from many perspectives, we have adopted the value perspective as our unifying theme. Why? Because value is central to virtually all real estate decision making including whether and how to lease, buy, or mortgage a property acquisition; whether to renovate, refinance, demolish, or expand a property; and when and how to divest (sell, trade, or abandon) a property. Thus, whether a person enters the business of real estate in a direct way (e.g., development and ownership), becomes involved in a real estate service business (e.g., brokerage, property management, consulting, appraisal), or simply owns a home, he or she must continually make investment valuation decisions or advise others on their decisions. The key to making sound investment decisions is to understand how property values are created, maintained, increased, or destroyed.
Once value is established as the central theme, all other concepts and principles of real estate analysis can be built around it. Legal considerations, financing requirements and alternatives, income and property tax considerations, and local market conditions all are important primarily in the context of how they affect the value of the property. For example, in Part 2 students will study growth management and land use regulations. Although these concepts have great interest from a political and public policy perspective, they are important from a real estate view primarily because of their potential effects on property rents and values. Similarly, the “imperfections” in real estate markets discussed in Part 3—such as the lack of adequate data, the large dollar value of properties, and the immobility of land and structures—are of interest primarily because of their effects on market values. Our objective is to provide the reader with a framework and a set of valuation and decision-making tools that can be used in a variety of situations.
The Fifth Edition
Since the publication of Real Estate Principles: A Value Approach, Fourth Edition, continued changes have come upon the world of real estate. This is true in transactions and brokerage with continued advancement of electronic marketing and the arrival of completely new forms and procedures for most real estate transactions, it is true in valuation with the expansion of automated valuation systems, a new version of the Uniform Residential Appraisal Report, and of new residential and commercial property data sources, and it is true in development and construction with the shift to “green” building. But it is still more true in real estate finance and capital sources where the dramatic advancement of internet lending and the implementation of the “Dodd-Frank” Act have displaced traditional practices, procedures and players, in mortgage finance. For investment property, the new players tend to be neither debt nor equity, but integrated entities who create a “capital structure,” and even the ownership structure, for the property. In addition, there continues to be change with profound and far-reaching implications in a world where we now understand that both residential and commercial property values can go down as well as up. This realization colors the demand for home ownership as well as every aspect of real estate investment, finance, and transactions for the foreseeable future.