![]() ![]() Consumers come to the good rather than the good going to the consumer. Real estate is locationally immobile (save for mobile homes, but the land underneath them is still immobile). ![]() 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. These functions may be separated (with market participants concentrating on one or the other function) or combined (in the case of the person that lives in a house that they own). Real estate can be purchased with the expectation of attaining a return (an investment good), with the intention of using it (a consumption good), or both. Both an investment good and a consumption good.Adjustment mechanisms tend to be slow relative to more fluid markets. Because of these lags, there is great potential for disequilibrium in the short run. 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. In some countries in continental Europe, transaction costs for both buyer and seller can range between 15% and 20%. Transaction costs for the seller typically range between 1.5% and 6% of the purchase price. The costs include search costs, real estate fees, moving costs, legal fees, land transfer taxes, and deed registration fees. Buying and/or moving into a home costs much more than most types of transactions. It can also be further divided into subcategories like recreational, income-generating, historical or protected, and the like. Further, the real estate market is typically divided into residential, commercial, and industrial segments. The market-equilibrating process operates across multiple quality levels. Housing stock depreciates, making it qualitatively different from new buildings. Olsen (1969) describes these units of housing services as an unobservable theoretical construct. 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. This makes pricing difficult, increases search costs, creates information asymmetry, and greatly restricts substitutability. Every unit of real estate is unique in terms of its location, the building, and its financing. The effect of real estate market adjustments tend to be mitigated by the relatively large stock of existing buildings. The stock of real estate supply in any period is determined by the existing stock in the previous period, the rate of deterioration of the existing stock, the rate of renovation of the existing stock, and the flow of new development in the current period. Although the proportion is highly variable over time, the vast majority of the building supply consists of the stock of existing buildings, while a small proportion consists of the flow of new development. As a result, real estate markets are modelled as a stock/flow market. A building can last for decades or even centuries, and the land underneath it is practically indestructible. In particular, the unique characteristics of the real estate market must be accommodated. In order to apply simple supply and demand analysis to real estate markets, a number of modifications need to be made to standard microeconomic assumptions and procedures. The choices of users, owners, and renters form the demand side of the market, while the choices of owners, developers and renovators form the supply side. Facilitators: This group includes banks, real estate brokers, lawyers, government regulators, and others that facilitate the purchase and sale of real estate.Renovators: These people supply refurbished properties to the market.Developers: These people are involved in developing land for buildings for sale in the market.Renters: These people are pure consumers.Typically, they rent out or lease the property to other parties. They do not occupy the real estate that they purchase. Owners: These people are pure investors.The land can be used in other ways, such as for agriculture, forestry or mining. Businesses may or may not require buildings to use land. They purchase houses or commercial property as an investment and also to live in or utilize as a business. Users: These people are both owners and tenants.The main participants in real estate markets are: ![]()
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