Economic and physical characteristics of real property

Physical characteristics

Land has three standard physical characteristics: immobility, indestructibility, and uniqueness. Immobility means a parcel cannot be moved to another location. Moving a building does not move the land beneath it. Indestructibility means land is enduring, unlike a building that can wear out or burn. Land can still be damaged, and its usefulness and value can fall. Uniqueness, also called nonhomogeneity, means no two parcels are exactly alike. Even equal-sized adjoining lots occupy different locations.

Economic characteristics

Four standard economic characteristics are scarcity, improvements, permanence of investment, and area preference. Scarcity concerns limited supply relative to demand. A large supply of rural acreage does not mean there is an abundant supply of desirable downtown sites. Scarcity alone does not establish a high price; buyers must want the available property.

Improvements are human-made additions or changes, such as buildings, roads, and utility systems. Work on one property or nearby infrastructure can influence other properties' usefulness and value. The cost of an improvement is not necessarily the amount it adds to market value.

Permanence of investment describes the long-lasting commitment of capital to real estate improvements. A sewer system or substantial building represents an investment that is difficult to recover by moving the improvement elsewhere. This is an economic characteristic, distinct from the physical endurance of land. It does not promise a profitable investment.

Area preference, also called situs, describes the market's preference for a particular location. Access to employment, transportation, services, and amenities can affect that preference. Preferences can change even though the land stays in place.

Apply the distinction

Consider two similar homes, one near a newly opened transit station. The parcels cannot move: immobility. They occupy different sites: uniqueness. Buyers paying more for convenient transit illustrates area preference. The station itself is an improvement, and its substantial construction cost illustrates permanence of investment. A limited number of nearby homes relative to interested buyers illustrates scarcity.

On an exam, identify what the question emphasizes. Location as a fixed physical fact points to immobility; desirability of that location points to area preference. Enduring land points to indestructibility; committed capital points to permanence of investment.