What exactly is real estate? Real estate is the tangible property, including structures, buildings, underground facilities, rights-of-way, and the like, that a person owns. The word real estate itself literally means physical, actual, or personal property. But what constitutes “real” property is open to interpretation and depends on whom you ask.
For some people “real estate” simply refers to the market value of a parcel or piece of land, and may include the depreciated monetary value of improvements to the property such as houses and other buildings. For other individuals, “real estate” encompasses much more than this. For example, let’s say that you’re looking to buy a piece of commercial property in an up-and-coming neighborhood. How should you define “real estate” for you? If you were to use the average real estate appraisal calculator, you might arrive at the following answer: The area of the parcel of land (in square footage) plus the current market value of the comparable properties within the immediate vicinity of the parcel’s location, less any expenses should be subtracted from the current market value to arrive at the amount of the fair market value of the property.
This approach could make it appear that the amount of property being appraised is actually greater than the market value, which is why your next step is to request a break down of the value of the property in its entirety. What does this mean? It means that you can arrive at two very different answers to the question, “What is real estate?” These answers are:
The Market Value of the Real Estate Approach There are several ways to arrive at the market value of a piece of real estate. The market value of a piece of property can be determined by looking at similar properties in the immediate area that have recently sold for the same amount or more that is being offered currently. Comparing apples to apples, one could say that the current asking price for comparable properties in the immediate vicinity of a piece of land is the fair market value of that piece of real estate. Another way of looking at it is that the market value of the piece of property being appraised is the average sale price paid for similar properties within the same general vicinity of it. These two methods will typically result in a range for the fair market value of real estate, rather than an exact value, which can vary.
Calculating the Fair Market Value The second method used by most realtors to arrive at the fair market value of a piece of real estate is to use some form of mathematical formula to calculate it. When using these formulas, there are two things to keep in mind. First, real estate values change each year and season. Second, the values usually also shift seasonally, with higher values in winter and lower values in summer. For this reason, real estate values usually don’t remain constant for a number of years, as they do for the cost of fuel and house prices.
How Do You Know If It’s Fair? There are a few different ways to determine if the fair market value is what you should be paying for your home. For instance, if you bought your home two years ago at a set rate, and it has since risen, then maybe you shouldn’t be paying that rate. Real estate values do occasionally shift, and this may mean that you have overpaid for your home. Usually, however, the market value of real estate generally remains consistent year after year.
What is real estate? The final way to ask the question, “What is real estate?” is to simply ask yourself, “What is a fair price for a home in my area?”
Real estate values will always fluctuate, but they follow a fairly predictable pattern. As the economy gets better, real estate values will also go up and down. If you want to avoid paying more than your home is worth, keep an eye on the economy and real estate markets. If the prices are going up, it is probably time to sell.