Topic 15.1: Physical Characteristics of Real Estate

Learning Objective

After successfully completing this topic, you will be able to describe the physical characteristics of real estate.

Immobility and Importance of Location in Determining Value

Changes in the surrounding area

If the area changes for the worse, surrounding real estate is affected.

The location of real estate is fixed. Because real estate is immobile, its value is heavily influenced by changes of nearby land uses.

Highest and best use is determined by potential users bidding for a site based on its locational and environmental value of the site in each use. If the value of a site in its current highest and best use declines relative to competing uses, highest and best use may change the land’s use.

Indestructibility (durability) of land

Land cannot be destroyed except by erosion or avulsion. Appraisers use depreciation to measure the loss in value from the buildings and improvements to the land, but land does not depreciate.

Property insurance is for improvements only, not land

While buildings and improvements can be insured against loss from fire, flood, or windstorm, insurance companies do not insure the land. 

Nonstandardized, nonhomogeneous, unique

No two parcels of real estate are exactly alike (homogeneous). Unlike buying stocks or securities, the nonhomogeneous nature of real estate means there is no standard price for a parcel of real estate.