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MBA 590 Real Estate Analysis
! College of BusinessAlfaisal
UNIVERSITY
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!
Syllabus !
Class Exams
Presentation Rules
!
!
! College of BusinessAlfaisal
UNIVERSITY
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Textbook !
Real Estate Principles: A Value
Approach !
David C. Ling Wayne R. Archer
! College of BusinessAlfaisal
UNIVERSITY
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What is real estate?
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What is real estate?
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Largest Component of
Wealth
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Half of Wealth is
Real Estate
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Make better decisions
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All decisions depend on an
estimate of value
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Price Cost Value
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1- Property
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1- Property
Anything you can own
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Property
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Property
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Property
Tangible - Touch
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Property
Tangible - Touch
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Property
Tangible - Touch
Intangible - Cannot Touch
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Property
Tangible - Touch
Intangible - Cannot Touch
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Land and its permanent
improvements
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Horizontal !
Vertical
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Personal Property
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2 - Bundle of Rights
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2 - Bundle of Rights
What I can do with real property
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Bundle of Rights
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Bundle of Rights
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Bundle of Rights
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Bundle of Rights
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Bundle of Rights
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Bundle of Rights
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Bundle of Rights
More rights = more value
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Bundle of Rights
More rights = more value
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Physical Location
Legal
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Is real property tangible or intangible?
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Is real property tangible or intangible?
Both
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3 - Industry
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3 - Industrydeveloping managing
buying/selling evaluating
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brokerage management
appraisal consulting site selection - development
construction financing
investment government
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entrepreneurs analysts
managers regulators
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Real Estate in U.S. 23%
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Financing Older to Younger
Generations
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Users Financing
Generations
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User Market Capital Market
Property Market
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User Market
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User Marketowner occupants
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User Marketowner occupantstenants or renters
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U.S. Ownership
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U.S. Ownershiphomes - 67%
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U.S. Ownershiphomes - 67%
commercial - 33%
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Saudi Ownership
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Saudi Ownershiphomes - 27%
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Residential
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Residentialsingle-family
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Residentialsingle-family
multiple-family
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Commercial
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Commercialoffices
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Commercialoffices
industrial
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Commercialoffices
industrialretail
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Commercialoffices
industrialretailother
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Capital Market
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Capital Marketprovide money to
the real estate market
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Capital Market
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Capital Marketequity
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Capital Marketequitydebt
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Equity
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Equityincome
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Equityincome
rent
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Equityincome
rentresale
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Return
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Returnon your money
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Returnon your moneyof your money
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Debt
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Debtlenders
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Debtlenders
return of principal and interest
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Equity and Debt
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Equity and Debtprivate
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Equity and Debtprivatepublic
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Private Public
Equity Owners
Individuals Partnerships Corporations
Private equity funds Hedge funds
Real Estate Investment Trusts (REITS)
Real Estate Companies
Debt Lenders
Banks, insurance companies, finance companies, private
lenders
Commercial mortgage backed securities (CMBS)
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Property Market
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Property Marketinvestors
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Property Marketinvestors
values
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Property Marketinvestors
valuesrates
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Property Marketinvestors
valuesrates
feasibility
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Capitalization Rate
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Capitalization Rate
fundamental
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Capitalization Rate
fundamentalmeasure
![Page 130: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/130.jpg)
Capitalization Rate
fundamentalmeasure
![Page 131: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/131.jpg)
IRV
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IRVI = Income
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IRVI = IncomeR = Rate
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IRVI = IncomeR = RateV = Value
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IRV
![Page 136: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/136.jpg)
IRVI = R x V
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IRVI = R x VR = I ÷ V
![Page 138: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/138.jpg)
IRVI = R x VR = I ÷ VV = I ÷ R
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IRV
![Page 140: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/140.jpg)
IRVIf you know two you can solve for
third
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IRV
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IRVI = 50,000
![Page 143: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/143.jpg)
IRVI = 50,000
V = 750,000
![Page 144: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/144.jpg)
IRVI = 50,000
V = 750,000R = ?
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IRV
![Page 146: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/146.jpg)
IRVI = R x V
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IRVI = R x VR = I ÷ V
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IRVI = R x VR = I ÷ VV = I ÷ R
![Page 149: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/149.jpg)
IRVI = R x VR = I ÷ VV = I ÷ R
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![Page 151: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/151.jpg)
R = I ÷ V
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R = I ÷ VR = 50,000 ÷ 750,000
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R = I ÷ VR = 50,000 ÷ 750,000R = .0667 or 6.67%
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![Page 155: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/155.jpg)
I = 500,000
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I = 500,000R = .08 or 8%
![Page 157: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/157.jpg)
I = 500,000R = .08 or 8%
V = ?
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I = 500,000R = .08 or 8%
V = ?V = I ÷ R
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I = 500,000R = .08 or 8%
V = ?V = I ÷ R
V = 500,000 ÷ .08
![Page 160: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/160.jpg)
I = 500,000R = .08 or 8%
V = ?V = I ÷ R
V = 500,000 ÷ .08V = 6,250,000
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I = 500,000R = .08 or 8%
V = ?V = I ÷ R
V = 500,000 ÷ .08V = 6,250,000
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I = 500,000R = .08 or 8%
V = ?V = I ÷ R
V = 500,000 ÷ .08V = 6,250,000
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V = 5,000,000
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V = 5,000,000R = .07 or 7%
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V = 5,000,000R = .07 or 7%
I = ?
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V = 5,000,000R = .07 or 7%
I = ?I = V x R
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V = 5,000,000R = .07 or 7%
I = ?I = V x R
I = 5,000,000 x .07
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V = 5,000,000R = .07 or 7%
I = ?I = V x R
I = 5,000,000 x .07I = 350,000
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V = 5,000,000R = .07 or 7%
I = ?I = V x R
I = 5,000,000 x .07I = 350,000
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V = 5,000,000R = .07 or 7%
I = ?I = V x R
I = 5,000,000 x .07I = 350,000
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Government
![Page 173: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/173.jpg)
Governmentzoning and land use
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Governmentzoning and land use
fees
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Governmentzoning and land use
feesbuilding codes
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Governmentzoning and land use
feesbuilding codesproperty taxes
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Government
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Governmentlicensing
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Governmentlicensingfinancing
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Governmentlicensingfinancingsubsidy
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Governmentlicensingfinancingsubsidy
infrastructure
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![Page 183: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/183.jpg)
User Market
![Page 184: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/184.jpg)
User Marketsupply and demand
determine rental rates which
determines property cash
flow
![Page 185: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/185.jpg)
User Marketsupply and demand
determine rental rates which
determines property cash
flow
I
![Page 186: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/186.jpg)
User Market
Capital Market
supply and demand
determine rental rates which
determines property cash
flow
I
![Page 187: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/187.jpg)
User Market
Capital Market
supply and demand
determine rental rates which
determines property cash
flow
savers and borrowers determine
required rates of return
I
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User Market
Capital Market
supply and demand
determine rental rates which
determines property cash
flow
savers and borrowers determine
required rates of return
I R
![Page 189: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/189.jpg)
User Market
Capital Market
Property Market
supply and demand
determine rental rates which
determines property cash
flow
savers and borrowers determine
required rates of return
I R
![Page 190: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/190.jpg)
User Market
Capital Market
Property Market
supply and demand
determine rental rates which
determines property cash
flow
savers and borrowers determine
required rates of return
NOI and required rates
of return determine
values !
I R
![Page 191: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/191.jpg)
User Market
Capital Market
Property Market
supply and demand
determine rental rates which
determines property cash
flow
savers and borrowers determine
required rates of return
NOI and required rates
of return determine
values !
I RV
![Page 192: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/192.jpg)
What affects value?
![Page 193: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/193.jpg)
What affects value?
all kinds of factors
![Page 194: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/194.jpg)
risks and rates
![Page 195: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/195.jpg)
risks and rateslocation risk
![Page 196: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/196.jpg)
risks and rateslocation risk
property type risk
![Page 197: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/197.jpg)
risks and rateslocation risk
property type riskmanagement risk
![Page 198: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/198.jpg)
risks and rateslocation risk
property type riskmanagement risk
other risk
![Page 199: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/199.jpg)
new construction
![Page 200: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/200.jpg)
new constructionif cost is less than
value
![Page 201: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/201.jpg)
supply and demand
![Page 202: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/202.jpg)
supply and demand
supply is long
![Page 203: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/203.jpg)
supply and demand
supply is longdemand can be
short
![Page 204: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/204.jpg)
Volatile
![Page 205: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/205.jpg)
Volatile
good can turn bad and bad can turn
good
![Page 206: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/206.jpg)
Real Estate Markets differ from all other
markets
![Page 207: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/207.jpg)
heterogeneous
![Page 208: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/208.jpg)
heterogeneous
no two properties are exactly the
same
![Page 209: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/209.jpg)
LVS
![Page 210: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/210.jpg)
LVS
location-value
![Page 211: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/211.jpg)
LVS
location-valuesignature
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Location
![Page 213: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/213.jpg)
Location
internal
![Page 214: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/214.jpg)
Location
internalexternal
![Page 215: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/215.jpg)
immobility
![Page 216: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/216.jpg)
immobility
cannot change locations
![Page 217: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/217.jpg)
Markets
![Page 218: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/218.jpg)
Marketsilliquid
![Page 219: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/219.jpg)
Marketsilliquid
localized
![Page 220: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/220.jpg)
Marketsilliquid
localizedsegmented
![Page 221: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/221.jpg)
Marketsilliquid
localizedsegmented
private negotiation
![Page 222: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/222.jpg)
Localized
![Page 223: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/223.jpg)
Localized
the closer the more effect
![Page 224: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/224.jpg)
Segmented
![Page 225: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/225.jpg)
Segmented
different types
![Page 226: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/226.jpg)
Segmented
different typesdifferent prices
![Page 227: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/227.jpg)
Negotiations and Costs
![Page 228: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/228.jpg)
Negotiations and Costs
complexity
![Page 229: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/229.jpg)
Negotiations and Costs
complexityprofessionals
![Page 230: 590 Lecture 1](https://reader033.fdocuments.us/reader033/viewer/2022052600/55777958d8b42a56728b4e9c/html5/thumbnails/230.jpg)
Negotiations and Costs
complexityprofessionals
time