Characteristics of Real Property

Real property has unique economic and physical characteristics. These traits explain why location matters, why land use controls exist, and why real estate behaves differently than other assets.

Economic Characteristics

Scarcity - Land is limited in supply. Desirable land is even more limited, which supports value over time.

Improvement - Changes to land can increase or decrease value. Improvements include buildings, infrastructure, landscaping, and renovations.

Permanence of investment (fixity) - Land is durable and long-lasting. This is why real estate investments are long-term and why mistakes are costly.

Area preference (situs) - Value depends heavily on location and surrounding influences such as schools, transportation, neighborhood trends, and job growth.

Physical Characteristics

Immobility - Land cannot be moved to a better location. This is the foundation of the saying, "location, location, location."

Indestructibility - Land itself is durable, even if improvements can deteriorate or be destroyed.

Uniqueness (non-homogeneity) - No two parcels are exactly the same. Differences in location, size, shape, and features create value differences.

Connecting Characteristics to Value

Table: Real Property Characteristics

Externalities and Value

Externalities are outside influences on property value.

• Positive externalities (new parks, transit lines, schools) can increase value.
• Negative externalities (noise, pollution, high crime) can reduce value.

Because land is immobile, owners cannot escape externalities. This is why location is the top driver of value.

Highest and Best Use

Highest and best use is the most profitable legal use of a property. It must be:

1. Physically possible
2. Legally permissible
3. Financially feasible
4. Maximally productive

These criteria depend on local zoning and market demand, which connect directly to scarcity, situs, and immobility.

Market Cycles and Real Estate

Real estate values also respond to local market cycles.

• Expansion - Demand increases, prices rise, and building activity grows.
• Peak - Prices and construction reach highs.
• Contraction - Sales slow and vacancies rise.
• Recovery - Demand returns and values stabilize.

Agents must understand cycles because they affect pricing, marketing, and buyer expectations.

Exam Application

If a question asks why a location has strong value even when buildings are similar, look for area preference and immobility. If a question asks why comparables need adjustments, look for uniqueness.

Exam Tip: Questions about location and neighborhood trends are testing situs.

How Characteristics Shape Pricing Strategy

Agents price property by combining local market data with these characteristics:

• Scarcity drives competition. Low inventory markets support higher prices and faster sales.
• Situs explains why two similar homes sell for different prices based on school zones, commute times, or neighborhood reputation.
• Uniqueness limits direct comparisons, so appraisers adjust comps for differences in size, condition, or features.

Improvement and Over-Improvement

Improvements can increase value, but only when the market is willing to pay for them. Over-improving a home beyond neighborhood standards can reduce the return on investment because buyers compare it to nearby properties.

Conformity is the idea that a property achieves maximum value when it fits the character of the area. A luxury home in a modest neighborhood may not achieve its full cost because it does not conform.

External Influences and Marketability

Real estate is affected by factors outside the property line:

• Economic changes (job growth or layoffs)
• Public improvements (new roads, parks, or schools)
• Environmental issues (flood zones, noise, or pollution)

Because land is immobile, owners must live with these influences. This is why buyers ask about neighborhood plans, zoning changes, and future development.

Mini-Case: Location vs. Condition

Two homes are identical in size and layout. One sits near a noisy freeway, the other in a quiet subdivision with strong schools. Even if the freeway home is remodeled, it often sells for less. This shows how situs and externalities can outweigh improvements.

Exam Application Check

If a question asks why a property is hard to compare, choose uniqueness. If it asks why location dominates value, choose situs or immobility. If it asks why a strong neighborhood supports value, choose conformity.

Quick Review and Practice

Use this checklist to connect characteristics to value in exam questions:

• If supply is limited, focus on scarcity.
• If the question centers on location, focus on situs.
• If a property cannot be moved, focus on immobility.
• If the property is unique, focus on non-homogeneity.

Short Scenario

Two vacant lots are the same size. One is on a corner with heavy traffic; the other is on a quiet side street. A buyer wants a retail coffee shop. The corner lot likely has higher value because its situs supports the intended use. The side street lot may be worth less even though the land size is identical.

Common Exam Trap

Do not confuse scarcity with situs. Scarcity refers to limited supply, while situs refers to the quality of the location.