For real estate to have value, it must have specific characteristics
By Jeff Sorg, OnlineEd Blog
(May 23, 2012) – For real estate to have value, it must have particular characteristics. These characteristics are often referred to as the Four Essentials to Value. The Four Essentials to Value are:
Demand – Demand changes from person to person. When many people want the same property, demand increases, and so does its value. When few people desire the same property, demand for it lessens, and so does its value.
Utility – The character of utility requires the property to be useful in some way. The more people it is useful to, the higher its value. Because needs differ from person to person, utility is most often a personal characteristic.
Scarcity – The characteristic of scarcity is based on the supply of the property concerning the demand for the property. The less scarce the property in comparison to its demand, the lower its value. On the other hand, the rarer the property, the higher its value.
Transferability – For a property to have value, the owner must be able to transfer its ownership in exchange for something else of value. Under normal circumstances, transferability is not a factor that affects value. However, because real estate is immobile, its rights and interests must be perceived as valuable. This means the more encumbrances or restrictions against a property, the less its perceived value.
The Four Essentials to Value are easily remembered by the acronym DUST.
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