A real estate fundamentals project to enhance learning

Journal of Real Estate Practice and Education, 2003 by Born, Waldo L

Abstract. The business imperative for higher education is to sharpen written communications and critical thinking skills, including decision-making, of students graduated from AACSB accredited schools of business. This study presents a semester-long project report guiding students through the process of collecting real estate market information, analyzing the data and making reasoned purchase decisions. The data are based on single-family residential real estate that, through coordination, should be available in any urban area. The analysis is simplified, but the process is detailed and, in general, could be applied to any type of real estate. The motivation for students is that this process will be useful in future housing decisions.

Introduction

Student learning is enhanced by the application of concepts to a practical problem since the practical problem provides motivation for learning the material. Additionally, the American Assembly of Collegiate School of Business (AACSB), the major accreditation body for schools of business, requires the following issues to be integrated into course material to emphasize perspectives and skills in business, specifically: (1) global awareness/international perspective; (2) ethics and social involvement; (3) technology application in business; (4) critical thinking; and (5) oral and written communications. The project suggested in this paper explicitly embodies processes addressing three of these issues.

The project includes the application of concepts from urban and regional economics, market analysis, valuation, property rights, marketing, finance and investment.1 The project constitutes 20% of the course grade in the introductory real estate course in which it is used. The project challenges students to collect information from public offices and from visits to selected properties. A detailed analysis of property characteristics requires the application of valuation concepts in reaching a logical price for a selected property. The student must make a decision regarding a property to purchase, review financing options, determine how to purchase the property, and when in the future, by virtue of savings and current income, he/she will become qualified to buy the property.

To promote rational student work planning, to ease the load in grading the projects, and to provide a tool for assessing written communications skills required for business program accreditation, the work is accomplished in three phases, equally spaced throughout a semester. Phase I includes data collection. Phase II includes revision of the graded Phase I interim report and an analysis of data collected to reach a rational price for a selected property acquisition. Phase III includes revision of the graded Phase I and Phase II components plus a detailed financial analysis of the purchase decision. Each student receives feedback on the graded Phase I and Phase II interim reports.

Background

There is little in recent literature related to applied components of a university-level real estate course of instruction that includes a project similar to the one outlined in this paper. Most real estate pedagogical work published addresses topics, concepts and cases. A typical representation of the latter can be found in the Journal of Real Estate Practice and Education. One article contained a discussion of the process for developing an integrated real estate curriculum including team building, cooperative and collaborative learning techniques, and emphasized the time commitment required (Butler, Guntermann and Wolverton, 1998). Two additional articles were aimed toward concepts in real estate finance. One concentrated on the process of determining the initial payment on a graduated payment mortgage (Winkler and Jud, 1998). The other dealt with teaching the role of mortgage prepayment in secondary market transactions (McNulty, 1999). An additional article describes the Fisher-DiPasquale-Wheaton integrated property market model in a framework that could be applied in a pedagogical setting (Achour-Fischer, 1999).

Consequently, there are opportunities to describe material and processes that have a significant contribution to course work in the form of applied teaching tools. This applied project is just such a tool. The project would have broader application if it were applied to commercial properties. However, in the market area in which the author's educational institution resides, the number of commercial property sales are quite infrequent and the dollar volume of sales very low. Thus, single-family residential properties are the most viable alternative.

The Model

Project Outline

The organization and structure of the project is detailed in a formalized Project Criteria, which is provided to students via the Internet.2 The Project Criteria provides the student with a suggested strategy for selecting the existing homes, the subject and two comparables, plus a custom home and a building lot similar to the subject home lot that will be used throughout the project. The Multiple Listing Service online database documentation is also provided. Detailed suggestions regarding legal, physical and financial property characteristics are included to assist the student in recording adequate descriptions of each property characteristic for all four properties. The sections of the project report include: (1) the problem; (2) property description; (3) property characteristics analysis; (4) financial analysis of the purchase decision; (5) the results; and (6) the conclusions. Guidance for completing each section is included in the Project Criteria.