The Real Estate Business
Real estate is both a physical asset and a business. Separate real estate (land plus improvements) from real property (the bundle of rights that accompanies ownership). Careers in the field include brokerage, property management, appraisal, mortgage lending, development, subdivision, and counseling; the licensing exam focuses mainly on brokerage but expects you to recognize the others.
Market characteristics
Real estate markets are local, immobile, heterogeneous, slow to adjust, and heavily regulated. Florida adds tourism, agriculture, international buyers, retiree migration, seasonal rentals, and insurance/hurricane costs to the picture.
Demand vs. supply
Demand factors include population, household income, employment, credit availability, and buyer expectations. Supply factors include land availability, construction costs, labor, materials, and government regulation. Interest rates appear on both sides, because they change what buyers can afford and what builders can finance, so a question that calls rates a pure demand factor is a trap.
The economic base is the export sector (jobs that bring money in from outside the area); service employment is secondary and follows it.
Trap watch
- Do not confuse market price with market value.
- Do not confuse vacancy rate with absorption, the rate at which available space is taken up over time.
- Economic base is not the same as total employment.
Rule of thumb
Months of inventory = active listings divided by average monthly closings. Around six months is balanced; under about four favors sellers.