Characteristics of Real Estate Flashcards

Characteristics of Real Estate Flashcards ModificationModifications, also called improvements, are man-made developments made to real property. Modifications greatly influence land use and value. They can be anything from apartments to airports, schools to sewers, farms to factories.Take airports, for instance. The land running adjacent to an airport is commercially valuable property.The land in the path of takeoff and landing points, however, is devalued due to high noise pollution levels from launching and landing aircraft (as well as the small but not insignificant risk of an airplane crash landing in the vicinity).Thus, modifications (or improvements) don't always "improve" real property, and "improvements" can both raise and lower land values.Economic Characteristics of Landscarcity, modification, fixity, situs situsSitus, or location preference, refers to a location from an economic rather than a geographic standpoint. Residential, commercial, and industrial properties have different location preferences for different reasons. For a residential area, natural factors like weather, views, and air quality affect situs, along with man-made factors like job opportunities, shopping, and schools. An industrial zone's situs depends on factors such as the availability of a labor market, ample water and electricity supplies, and access to railways.Situs is the reason why house lots on street corners, corner offices, and apartments with commanding views are valued more highly than identically-sized lots in less-preferred locations. It's worth noting, however, that situs can change with time. The freeway-building boom of the 1950s and '60s, for example, increased situs in the suburbs.The trend now, however, appears to be reversing.Historic downtown rehabilitation and a desire to shorten commutes have inspired people to move back into central, urbanized areas, increasing the situs in cities compared to that of the suburbs.

• Physical Characteristics of Land1. Immobility2. Indestructibility3. Nonhemogeneity

ScarcityScarcity is a shortage of land in a given geographical area where there is a great demand for land. It is a manmade characteristic. One famous example of this is Manhattan Island in New York City. Manhattan Island is 13 miles long, two miles wide, and home to over 1.5 million people, with an additional 1.5 million commuting to Manhattan each day

to work. The median sale price of a home in Lower Manhattan is $3 million.These Manhattan prices, a result of scarcity, are in stark contrast with real estate just a short drive from Manhattan. Indeed, the further from New York City and into central and northern New York State a person might travel, the more likely to find either developed or undeveloped land at reasonable prices due to a sufficiency or over-sufficiency (i.e., a LACK of scarcity) of land relative to demand.FixityFixity, also called investment permanence, means that land, buildings, and other improvements require long periods of time to pay for themselves. For example, the income generated by an apartment or office building may take upwards of 20 or 30 years to repay the costs

associated with developing the land and buildings.For that reason, real estate investment and land-use decisions have to consider the long-term usefulness of improvements; projecting not only one or five years into the future, but 20 or 30 years down the line. It makes little sense to invest in an improvement with a five-year lifespan if it would take, in actuality, decades to pay for itself.Fixity also refers to the immobility of property. Land cannot be moved from one location to another where it would be more valuable. For the most part, improvements to land follow this same general rule. With very few exceptions, the cost of moving a house, as well as preparing a foundation at a new site, exceeds the value of the home once the move is done.This is why an investment in real estate is regarded as a fixed or "sunk" cost.