Certified Residential Appraiser Practice Exam

What is meant by the 'economic base' in relation to economic forces affecting real estate?

1. The amount of land owned by individuals

2. The primary industries and employment sectors in a region

3. The legal framework governing property transactions

4. The total number of properties available for sale

The correct answer is: The primary industries and employment sectors in a region

The ‘economic base’ refers to the primary industries and employment sectors present in a region, which play a crucial role in shaping the economy and influencing real estate dynamics. This concept is fundamental because the strength and diversity of these industries determine the demand for housing, commercial properties, and other real estate investments in that area. When a region has a robust economic base, characterized by stable and diverse industries, it typically experiences increased job creation and population growth, leading to a higher demand for real estate. Conversely, areas with a weak economic base may struggle to attract new residents or retain the existing population, resulting in lower demand for real estate. The other options do not accurately capture the essence of the ‘economic base’. The amount of land owned by individuals pertains to land ownership rather than the economic factors driving demand. The legal framework governing property transactions addresses the regulations and laws that guide real estate practices but does not directly influence the economic conditions in a region. Similarly, the total number of properties available for sale relates more to market supply than to the foundational economic elements that impact real estate value and demand. Thus, the focus on primary industries and employment is what makes the definition of the 'economic base' critical in understanding the economic forces affecting real estate.