Principles of Real Estate National Exam
Questions with Answers
Two Types of Property: - ✔✔1.) Tangible: physical assets that can be owned (can be real or
personal property).
2.) Intangible: non-physical assets (such as stocks, bonds, mortgages, leases, etc.).
Real Estate: - ✔✔- The physical/tangible land and its improvements.
- For example, the Neutron Bomb destroys all life on Earth, there'e no real property left
because nobody is there to have rights, but there is real estate left with the land and its
improvements present.
Land: - ✔✔- The natural surface (ground, water, dirt, etc.).
- Boundaries are not obvious or natural.
- Boundary errors always hurt someone.
- Last indefinitely and will not be depreciated.
Improvements of Land: - ✔✔- Any manmade (buildings, walkways, driveways, lighting, parking
lot, excavation and landfill, sewers and utilities, etc.) structure permanently attached to the
land.
- Have a limited life and are depreciated.
"Real Estate" Used in Three Ways: - ✔✔1.) Real estate as a tangible asset:
- "Raw" land.
- Improvements to the land: excavation and landfill, sewers and other utilities, roads and
driveways.
- Structures (improvements on the land).
2.) Real estate as a bundle of rights:
,- Exclusive possession of the real property.
- Use or enjoyment (can use as rental property to generate cash flow).
- Disposition.
- Can be unbundled in many ways.
3.) Real estate as an industry and profession:
- For example: brokerage, development, leasing, property management, asset management,
real estate law, appraisal, government regulation and taxation, etc.
Real Estate in the Economy: - ✔✔- Half of the world's wealth.
- Generates over 28% of U.S gross domestic product (GDP).
- Real estate makes up about 2/3 of our economy.
What Determines Real Estate Values? - ✔✔- Interactions in 3 distinct markets/sectors:
1.) User (space) markets.
2.) Capital markets.
3.) Governmental sector(s).
User Markets: - ✔✔- Market for the physical real estate.
- "Buyers" receive the right to use space.
- Where rental rates are determined.
- These markets are very "local" and usually highly competitive.
User Markets Demand & Supply: - ✔✔1.) On the demand side:
- Individuals, households, and firms who require space either for consumption or production
purposes.
2.) On the supply side:
- Real estate owners/operators who rent space to tenants.
*Both demand and supply side of user markets are very specific to location and building type.*
, Capital Markets: - ✔✔- Real estate competes for funds in capital market with other asset
classes, such as stocks and bonds.
- Investors select a mix of investments based on expected returns and risk.
Public v Private Capital Markets: - ✔✔1.) Public:
- Small homogeneous units (shares) of ownership in assets trade in public exchanges.
- Many buyers and sellers.
- Price quotes available for all to see.
- Characterized by a high degree of liquidity.
- Informatioanlly efficient.
2.) Private:
- Absence of centralized market (or even price lists).
- Assets trade infrequently in private transactions (thus a lack of transparency).
- Common for "whole" assets to be traded in a single transaction (indivisibility).
- Less liquidity than public markets.
- Higher transaction costs.
What Are Rights? - ✔✔1.) Claims that the government is obligated to enforce:
- Derived from the Constitution.
- Different from raw power.
2.) Non-revocable:
- Can be reduced in the interest of health, safety, and welfare.
3.) Enduring:
- Not limited to the memory of owners or others.
- Cannot be nullified by other persons or by government.
Questions with Answers
Two Types of Property: - ✔✔1.) Tangible: physical assets that can be owned (can be real or
personal property).
2.) Intangible: non-physical assets (such as stocks, bonds, mortgages, leases, etc.).
Real Estate: - ✔✔- The physical/tangible land and its improvements.
- For example, the Neutron Bomb destroys all life on Earth, there'e no real property left
because nobody is there to have rights, but there is real estate left with the land and its
improvements present.
Land: - ✔✔- The natural surface (ground, water, dirt, etc.).
- Boundaries are not obvious or natural.
- Boundary errors always hurt someone.
- Last indefinitely and will not be depreciated.
Improvements of Land: - ✔✔- Any manmade (buildings, walkways, driveways, lighting, parking
lot, excavation and landfill, sewers and utilities, etc.) structure permanently attached to the
land.
- Have a limited life and are depreciated.
"Real Estate" Used in Three Ways: - ✔✔1.) Real estate as a tangible asset:
- "Raw" land.
- Improvements to the land: excavation and landfill, sewers and other utilities, roads and
driveways.
- Structures (improvements on the land).
2.) Real estate as a bundle of rights:
,- Exclusive possession of the real property.
- Use or enjoyment (can use as rental property to generate cash flow).
- Disposition.
- Can be unbundled in many ways.
3.) Real estate as an industry and profession:
- For example: brokerage, development, leasing, property management, asset management,
real estate law, appraisal, government regulation and taxation, etc.
Real Estate in the Economy: - ✔✔- Half of the world's wealth.
- Generates over 28% of U.S gross domestic product (GDP).
- Real estate makes up about 2/3 of our economy.
What Determines Real Estate Values? - ✔✔- Interactions in 3 distinct markets/sectors:
1.) User (space) markets.
2.) Capital markets.
3.) Governmental sector(s).
User Markets: - ✔✔- Market for the physical real estate.
- "Buyers" receive the right to use space.
- Where rental rates are determined.
- These markets are very "local" and usually highly competitive.
User Markets Demand & Supply: - ✔✔1.) On the demand side:
- Individuals, households, and firms who require space either for consumption or production
purposes.
2.) On the supply side:
- Real estate owners/operators who rent space to tenants.
*Both demand and supply side of user markets are very specific to location and building type.*
, Capital Markets: - ✔✔- Real estate competes for funds in capital market with other asset
classes, such as stocks and bonds.
- Investors select a mix of investments based on expected returns and risk.
Public v Private Capital Markets: - ✔✔1.) Public:
- Small homogeneous units (shares) of ownership in assets trade in public exchanges.
- Many buyers and sellers.
- Price quotes available for all to see.
- Characterized by a high degree of liquidity.
- Informatioanlly efficient.
2.) Private:
- Absence of centralized market (or even price lists).
- Assets trade infrequently in private transactions (thus a lack of transparency).
- Common for "whole" assets to be traded in a single transaction (indivisibility).
- Less liquidity than public markets.
- Higher transaction costs.
What Are Rights? - ✔✔1.) Claims that the government is obligated to enforce:
- Derived from the Constitution.
- Different from raw power.
2.) Non-revocable:
- Can be reduced in the interest of health, safety, and welfare.
3.) Enduring:
- Not limited to the memory of owners or others.
- Cannot be nullified by other persons or by government.
