Elements of Value

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The foregoing concepts describe why people might be willing to pay more for one property than an alternative choice, or even choose not to buy property. These are the basic elements understood to influence real estate value.

Perhaps the most overlooked and underestimated consideration influencing value in real estate is timing. In my opinion, timing is far more important than any single factor in real estate. Timing facilitates sales when demand is strong and the resources to take action are readily available. The absence of demand and the inability to put together acquisition resources can render any property nearly worthless at a given point in time.

It seems that everyone is familiar with the importance of location influencing real estate value. Coronado or Santee? Adjacent to a landfill, or backing up to a national forest? Ocean frontage or freeway frontage? These are choices among which the general population of buyers would surely find themselves in agreement; an overwhelming demand across socio-economic classes for one location over another. What about a corner lot when compare to a cul-de-sac lot? Choices such a this one illustrate more of a personal preference, yet a choice in which buyer demand can be equally polarized; that is to say, some people may reject a corner lot and others might prefer a corner lot.

The use of the term features in real estate refers to the physical and inherent traits of a particular property which make it memorable and unique for a potential buyer. Lakes and ponds, rivers, trees, view shed, rock work, soil, and wildlife habitat are but a few of the many features of a specific property that may be held above other economic factors in the purchasing decision of a potential buyer. The features a buyer holds as “valuable” often vary from person to person. The role of features in determining value is very subjective and difficult to quantify, or put a price on.

How does a property suit the needs of a potential buyer? For many buyers, the function of a particular property is the overriding determinate of value. A home close to parks and schools might work well for a young family. Corals, a barn arena, proximity to riding trails, and flat ground would meet a horse person’s requirements. Seller financing could also be considered a function of an offering that would serve the needs of a buyer who does not qualify for conventional financing. How function plays into a buyer’s purchasing decision will evolve over time with changes in lifestyle.

Entitlements are the rights to develop a property for a specific use. Entitlements include zoning, access, utilities, landscape, any special use permits, and the like. Rural properties, in particular, may have restrictions on land use reserved by deed. For example, it is possible to own a large parcel of land and not be entitled to drill a water well. It is also possible to own a parcel of land and not have access to it. You can own land, and not be able to do anything with it when it is encumbered by open space or conservation easements. Researching entitlements during the due diligence period of purchasing property is the most important action a buyer can take and the single most important investment a buyer will make in the property.

If there is a single concept explaining why one property is more valuable than another, it is the notion of desirability. Moreover, there is a direct relationship between how many people find a property desirable and the value of a specific property; demand is created through competing desires. It is not unusual for potential buyers to possess a strong desire to purchase a property for reasons they cannot articulate – they feel a benefit that does not translate into words. I know this is the case when buyers are explaining to me why this property is a “good deal,” which are typically reasons justifying their purchase that have nothing to do with why they really want the property. This process of rationalization is not intentional deception, just an errant attempt to translate an emotion into words that a business person might understand – and validate! When buyers identify with a property and can visualize their new life anchored in this new environment, desire is sparked and a strong motive to acquire the property emerges. Desire overrides reason and, consequently, market value in the purchasing decision of most buyers. Desirability is arguably the most dynamic element of real estate value.

 

Contact Donn Bree today and let us find you an investment property for sale in California.

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