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02.12.2022
Reading time: 2 minutes
Author: Sea Inside

How is the market value of real estate formed?

Why do apartments with the same conditions cost differently? What is the price per square meter? Let's explain in detail.

So, how is the price of real estate formed? There is no exact pricing scheme, but there are a few nuances that will help to understand the essence. To begin with, let's figure out what the "market price of real estate" is. The market value in the economy is considered the most probable price at which a good or service can be sold on a free market in conditions of healthy competition. Simply put, this is the price that the seller sets and that the buyer is willing to pay. To some, such a definition will seem vague (and not unreasonable), but such pricing is the key to a free market.

Another economic term that plays a role is the cost of real estate. Here's what it's made up of:

  • The cost of the land
  • Design costs
  • The cost of building materials
  • Construction cost
  • Engineering filling
  • Summing up communications
  • Taxes

So, in the formation of the market price of real estate, the first and most important role is played by the cost of construction. However, not only she. Also (and maybe even to a greater extent) the cost is affected by market conditions, which should be understood as:

  • The level of demand for real estate in a given area
  • Presence/absence of the developer's bank debt (if the company is building an object with borrowed funds, then the price per square meter will include the cost of paying on the loan).

What else makes up the value of real estate? Here are the main parameters that affect the cost per square meter.


Location
If an apartment or house is located in the city center or on the first line of a seaside resort (for example, as a hotel and residential complex Batumi View from Sea Inside), it will cost more than a similar apartment located on the outskirts or far from the beach.


House condition
A new building or a resale, a “white frame” or “turnkey” stage, old finishes or renovations from world hotel brands, as in the 5 * Blue Sky complex, the renovation of apartments in which meets Holiday Inn standards - all this is also reflected in the price.


Infrastructure
An apartment within walking distance of which there are shops, a bank, a school, a pharmacy or a restaurant costs more than one that, although renovated and furnished to the highest standard, is located in a new quarter with underdeveloped infrastructure.


Adjoining territory
Modern renovation and the first coastline are, of course, good, but an apartment in a house that stands in an untidy courtyard with broken benches will cost less than apartments in complexes with a landscaped house territory with playgrounds and recreation areas.


Summary
As it turns out, the market value of real estate is a labile concept. It is influenced by a combination of many factors. Such flexible pricing explains why two identical apartments with similar conditions in the same area cost differently.
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