Unit 1- Characteristics Of Real Estate

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Characteristics Of Real Estate

Real estate possesses seven basic characteristics that define its nature and affect its use. These characteristics fall into two general categories: Economic and Physical.

Two general categories of Real Estate characteristics….

Economic and Physical.

Economic Characteristics

The four economic characteristics of land that affect its value as a product in the marketplace are Scarcity, Improvements, Permanence of Investment, and Location or Area Preference.

Scarcity

Land isn’t generally considered a rare commodity, but only about a quarter of the earth’s surface is dry land; the rest is water. The total supply of land is not limitless. Even though a considerable amount of land remains unused or uninhabited, the availability of land in a given location or of a particular quality is limited.

Improvements

Building an improvement on one parcel of land can affect the land’s value as well as the use of neighboring tracts and whole communities. For example, improving a parcel of real estate by building a shopping center or selecting a site for a nuclear power plant or toxic waste dump can dramatically change the value of land in a large area.

Permanence of Investment

The capital and labor used to build the improvement represent a large fixed investment. Although even a well-built structure can be razed to make way for a newer building, improvements such as drainage, electricity, water, and sewerage remain. The return on such investments tends to be long-term and relatively stable.

Location or Area Preference

Area Preference or Situs ("to place") refers not only to geography but also to people’s preference for a specific area. Area preference is based on several factors, such as convenience, reputation, and history. It is the unique quality of these preferences that results in the different price points for similar properties. Location is often considered the single most important economic characteristic of land. For Example A river runs through a town, dividing it more or less in half. Houses on the north side of the river sell for an average of $170,000. On the south side of the river, identical houses sell for more than $200,000. The only difference is that homebuyers think that the area south of the river is a better neighborhood, even though no obvious difference exists between the two equally pleasant sides of town.

Physical Characteristics

Land has three physical characteristics: Immobility, Indestructibility, and Uniqueness.

Immobility

Although some of the substances of land are removable and topography can be changed, the geographic location of any given parcel of land can never be changed. Its location is fixed — immobile.

Indestructibility

Land is also indestructible. This permanence of land, coupled with the long-term nature of improvements, tends to stabilize investments in real property. The fact that land is indestructible does not, however, change the fact that improvements depreciate and can become obsolete, which may dramatically reduce the land’s value. This gradual depreciation should not be confused with the fact that the economic desirability of a given location can change.

Uniqueness

Uniqueness, or Non-Homogeneity, is the concept that no two parcels of property are exactly the same or in the same location. The characteristics of each property, no matter how small, differ from those of every other. An individual parcel has no substitute because each is unique.

Non-Homogeneity

Another word for Uniqueness.

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