The Role of Real Options in The Real Estate

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Business is the key to develop and improve the financial position of the people in the Sociality. The Real thinking is key to cater the needs of the people. The products be they estate, Property, goods of any kind, the customer has the always the choice to choose from the products of their need or choice. One cannot sell their product s by making huge claims regarding the usefulness of the product. The Customer has important role in the purchase of the Commodity. Similarity the real estate is such as business where customer takes the environment and location of the site in to consideration for their decision to purchase the Land . The Real estate has become the lucrative business in today world. in every Country there are real estate business vendors for selling and buy of the land in the Posh Areas of the Big cities and Towns.

What are Real Options? Real options are the Real choices of the People to avail or purchase some products from the market. The real options may defines as : “The first account is found in the writings of Aristotle. He tells of how Thales the Melesian, a sophist philosopher, divined from some tea leaves that there would be a bountiful olive harvest in six months’ time. Having a little money, he approached the owners of some olive presses and bought the right to rent their presses at the usual rate. When a record harvest duly arrived and the growers were clamoring for pressing capacity, he rented the presses to them at above the market rate, paid the normal rate to their owners, and kept the difference for himself – proving for all time that sophism is not only an honorable profession, but a profitable one too . Similar to options on financial securities, real options involve discretionary decisions or rights, with no obligation, to acquire or exchange an asset for a specified alternative price.

The real option is considered to be the right of the Customer , but it cannot be termed as obligation for enering the business Paln of action . typically the option to make a capital investment in the Buiness venture . The action of the Firm investing in the expansion of factory can be real option too. Contarsting with the financial options a real option is not considered tobe trade . The owner of the factory cannot sell his right to expand his factory to another firm , only his deciosn is counted here . The term the “real option” is new, whereas business communitry have been making capital investment decisions for many years . However the description of such opportunities as real options has occurred at the same time as thinking about such decisions in new, more analytically-based, ways. As such the terminology “real option” is closely tied to these new methods.

The term “real option” was coined by Professor Stewart Myersat the MIT Sloan School of Management.What is Real Estate ?According to American heritage dictionery Real estate Means ,” Land, including all the natural resources and permanent buildings on it.” Real estate or in other Words s immovable property is a term (in some jurisdictions) that enguklfs land along with anything permanently annexed to the land, such as buildings , propersty etc. Real estate or the property which in immovable is often confused synonymous with real property in contrast with personal property (also sometimes called chattel or personalty).

But , for technical purposes, some people distinguish real estate, by referring to the land and fixtures themselves, from real property, referring to ownership rights over real estate. The terms such as real estate and real property are used primarily in common law, where as civil law jurisdictions refer instead of immovable property.Currently, many economic experts have recognized that the lack ing of effective real estate laws which can be a significant obstacle to investment in many developing countries. Mostly rich or poor, a significant fraction of the total wealth is in the form of land and buildings. In most advanced economies, the main source of capital used by individuals and small companies to purchase and improve land and buildings is mortgages — bank loans for which the real property itself constitutes collateral.Mostly Banks are willing to make such loans at favorable rates because if the borrower who does not pay the lender can close in Advance file a court action that leaves them take the property and auction it to get their money back.

But in many developing countries there is no effective ways or methods by which a lender could close in advance , so the mortgage loan industry as such either does not exist at all or is only available to members of privileged social classes who are ruling the roost and enjoying the riches of the State . According to Law : the word real means relating to a thing (from Latin res, matter or thing), as distinguished from a person. Therefore the law exclusively distinguishes between [real property](land and anything connected to it) and [personal property](everything else, e.g., clothing, furniture, money). The Difference of concept was between immovable property, which would shift title along with the land, and movable property, to which a person would retain title to it .

Real Options in Real estate Pricing :There are two major types in which aggregate home prices are fixed: median and mean(average). Prices are also calculated by square foot, using both the mean and median price both for estimate . Real estate prices have had a profound impact on urban, as well as the suburban and rural landscape if considerd as the appropriate pricing for the property . As reagrds the median whose home price is the threshold which divides the real estate market into two equal halves, in reference to pricing. Where as One half of all homes in the market are priced above the median home price, while the other half are priced below it. The other main way of real estate Pricing is the mean home price, or average home price is the sum of all home prices in a certain area, divided by the number of properties in the same area. So this type is useful in develioping Countries where pricers are fixed on the Rate of the Surroundings . For Example , when an oil and gas company buys the drilling rights for a particular piece of land located in any part , it is essentially buying a real option, giving it the right (but not the obligation) to undertake drilling when it is profitable to do so. If oil prices plummet, the company can choose to not exercise its option and thus not drill for oil. In this process the Real options cannot ignored because it helps to choose the appropriate property which proves beneficial for the buyer and profitable whenever he wishes to resell the purchased property on Profit . Thus people would have their own choice to buy the certain property for their needs and resell it if they wish, subject to appropraite site and market based price is offered to them.

Features :The Real Options in Real estate pricing as stated above are very essteial they save the buyers from entering into such a business which may prove to be very dangeriyuos or loss for them. With real options Real estate Pricing will be appropraite and both the partines will be satified with prices at which the Certain property is soldor purchaed .

Conclusion.In nut shell ,Real options attract the value of managerial flexibility to adapt decisions in response to unexpected market developments occurring time to time . Most of the established Companies create shareholder value by identifying, managing and exercising real options associated with their investment portfolio. The real options method can also be applied to financial options theory to quantify the value of management flexibility in a world of uncertainty. If they are used as a conceptual tool, it allows management to characterize and communicate the strategic value of an investment project. According to the Traditional methods (e.g. net present value) fail to accurately capture the economic value of investments in an environment of widespread uncertainty or where the prices are rapidly changing with the passage of time . The Method real options represent the new state-of-the-art technique for the valuation and management of strategic investments in certain areas . The real option method also enables the corporate decision-makers to leverage uncertainty and limit downside risk of the Business deal . Therefore , the Real option could be termed as the best option as associated with the Real estate business .


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