United Built Homes, Real Estate Basics

United Built Homes, Real Estate Basics

It is our personal belief that any idiot can buy or sell real estate, it is

not only our belief it is also a fact, no one would ever believe that a

lower class gun touting hill billy from Texas could ever cash in on the

prospects of real estate however texas is home to some of the most wealthy

real estate investors whom never finished Middle school and began work at

the age of 13 to pay the bills after marrying there cousins (ok yeah I know

that was out of line). The point we are trying to make is by knowing real

estate basics anyone and we mean anyone can make money buying and selling

real estate, just read our basics below.

Heterogeneous - Every piece of real estate is unique, in terms of its

location, in terms of the building, and in terms of its financing. This

makes pricing difficult, increases search costs, creates information

asymmetry and greatly restricts substitutability. To get around this

problem, economists (beginning with Muth (1960)) define supply in terms of

service units, that is, any physical unit can be deconstructed into the

services that it provides.

Olsen (1969) describes these units of housing services as an unobservable

theoretical construct. Housing stock depreciates making it qualitatively

different from a new building. The market equilibrating process operates

across multiple quality levels. Further, the real estate market is

typically divided into residential, commercial, and industrial segments. It

can also be further divided into subcategories like recreational, income

generating, area, historical/protected, etc.

High Transaction costs - Buying and/or moving into a home costs much more

than most types of transactions. These costs include search costs, real

estate fees, moving costs, legal fees, land transfer taxes, and deed

registration fees. Transaction costs for the seller typically range between

1.5 - 6% of the purchase price.

Long time delays - The market adjustment process is subject to time delays

due to the length of time it takes to finance, design, and construct new

supply, and also due to the relatively slow rate of change of demand.

Because of these lags there is a great potential for disequilibrium in the

short run. Adjustment mechanisms tend to be slow, relative to more fluid

markets.

Both an investment good and a consumption good - Real estate can be

purchased with the expectation of attaining a return (an investment good),

or with the intention of using it (a consumption good), or both. These

functions can be separated (with market participants concentrating on one

or the other function) or can be combined (in the case of the person that

lives in a house that they own). This dual nature of the good means that it

is not uncommon for people to over-invest in real estate, that is, to

invest more money in an asset than it is worth on the open market.

Immobility - Real estate is locationally immobile (save for mobile homes,

but the land underneath them is still immobile). Consumers come to the good

rather than the good going to the consumer. Because of this, there can be

no physical market-place. This spatial fixity means that market adjustment

must occur by people moving to dwelling units, rather than the movement of

the goods. For example, if tastes change and more people demand suburban

houses, people must find housing in the suburbs, because it is impossible

to bring their existing house and lot to the suburb (even a mobile home

owner, who could move the house, must still find a new lot).

Spatial fixity combined with the close proximity of housing units in urban

areas suggest the potential for externalities inherent in a given location.

After learning these basics you two can be rich and finally move out of

your parents basement or grandmothers attic.