What Is Appreciation?
In real estate, appreciation is the increase in value of a property over time. Usually property increases in value because the demand for the property has increased. This increase is mostly because the supply of property is typically fixed.
Real Estate Agent Explains Appreciation
Real property is made up of the land and the building. The building wears out over time and therefore is depreciating, but the land is so valuable that it counteracts the decreasing value of the building. You would think that as a building gets older, it is worth less, and you’d be right, but the land that building is on keeps increasing in value, regardless.
For an example let’s use the property value of a condo in West Edmonton from 1985 to 2006:
Here you can see how the condo has appreciated in value over time – 398% in 11 years! Even though the building was built in 1969, the land that it sits on is making the real property more valuable over time. The land never stops working for you when you own it!
Of course, we only have information here on when it actually sold for specific amounts. In reality, the chart would be much smoother, but this is an actual real life example of real estate appreciation at work.
Why Does It Matter?
The single most important way to make money on real estate is through appreciation, so an understanding of it is crucial. When you’re investing, appreciation makes investing lucrative (see How To Make Money In Real Estate). When you’re buying a primary residence, appreciation is what usually tips the scale towards buying rather than renting (see Why Buy A House?).
