Real Estate Definitions
Posted on October 29, 2003
This article is licensed under the GNU Free Documentation License. It uses material from the Wikipedia article “Real Estate”.
Real
estate, is real
property consisting of land,
anything permanently affixed to the land (i.e., buildings),
and those things attached to the buildings (including such things as lighting
fixtures, window coverings, built-in appliances, etc.).
The term "real estate" was derived from "royal estate", real
meaning royal in Spanish.
A more modern US term is realty. A person dealing in real estate is
usually called a real estate agent; those United States real estate
agents who are members of the National Association of Realtors call themselves Realtors,
a trademarked term which the NAR claims may not be used to refer to real estate
agents who are not members. (In the United
Kingdom the offices and staff are just ‘estate agents’.) In civil law
jurisdictions the term is immovable
property. …(more)
Because such property is essential for industry or other activity requiring a
lot of fixed physical capital,
economics
is very concerned with real property and rules regarding its valuation and
disposition, and obligations accuring to its owners. In economic terms, real
property consists of some natural
capital (or land,
one of the factors
of production especially in agriculture), and infrastructural
capital (the buildings, water and power lines, and other improvements
necessary to make real property useful for some human purpose). Other fixed
physical assets, indistinguishable economically from infrastructure, such as
machines, may be stored on real property and may require natural or
infrastructural attributes (such as running water for a turbine or an isolated
location to allow loud noise emissions) hard to duplicate even nearby.
Accordingly, real estate tends to be difficult to evaluate in terms of commodity
markets - each piece is unique and has unique advantages and drawbacks. What
is more, zoning laws and severability requirements vary so much that the law
regarding real estate is among the most complex law there is. Specialists are
usually required to valuate, broker or sell real estate. Real estate businesses
divide into several broadly stated types:
Brokers attempt to match available properties with buyers.
They usually retain a monopoly access to a multiple listing service in order to
share information with other brokers. Agents work for brokers. The basic profits
are a 6% fee on the purchase price. 3% of the fee goes to the broker listing the
property, and 3% to the broker locating a buyer.
Commercial Real Estate businesses rent buildings and parking
lots to other businesses. Businesses usually make excellent tenants. They pay on
time, and generally fulfill contractual obligations. The difficulty is that it
can be difficult to find commercial tenants. Some commercial real-estate owners
specialize in small retail properties, and place their own businesses, usually
franchises, in their own real estate. Basic profits come from the fact that a
building that sold for $100 a square foot may rent for $1 per square foot per
month. To increase ROI,
commercial landlords place a mortgage with a lender. A major source of cash is
that they borrow the cost of the building, but must depreciate it. Most
landlords reinvest the cash allocated for depreciation, growing their assets.
Apartment Buildings are usually owned by businesses. The
management and upkeep costs are much larger than commercial real-estate, but the
business has far less difficulty finding tenants. To increase ROI,
commercial landlords place a mortgage with a lender. Basic profits come from the
fact that a building that sold for $100 a square foot may rent for $1 per square
foot per month. A major source of cash is that they borrow the cost of the
building, and invest the cash allocated for depreciation. The standard way of
coping with the management problems is to retain professional managers certified
for residential real estate.
Developers build on land, thereby increasing its value.
Developers are extremely concerned with providing useful buildings and
structures. Useless buildings have no value, which means they can’t be sold or
rented. The basic profits come from the fact that rural land sells for about
$1200/acre in the U.S., and converts to 43,560 square feet of building that can
be sold for $100/sq. foot, or rented for about $1/sq.foot. However, the building
can only sell if it’s in the right location, has utilities, construction costs
can be managed, and the project completes on time. The standard solution to the
construction problems is to retain a registered professional engineer who
specializes in supervision of construction, and involve this person before
purchasing the land. The standard solution to the salability problems is to
retain an architect to design an attractive development. Many developers retain
ownership of profitable rental properties.
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