A nominal price is the historical amount that an item was rented for
or purchased for at a given time. In comparison, real prices represent
the price of a piece of real estate when adjusted for factors such as
It is important to take the real value of a piece of real estate
into account when assessing its value over time, to ascertain whether it
actually increased or decreased in value.
The reason for this is because the purchasing value of money can
fluctuate over a given time, and the nominal value does not always
accurately represent the real value of a piece of real estate for that
period when compared to another time or the present.
A house that was worth $100,000 10 years ago and that has a current
price of $100,000 may have the same nominal price, but when inflation is
taken into account, it has actually decreased in value in terms of its
Likewise, if that house is currently on the market at $120,000, it
may appear as if the value of the home has increased, whereas the
increase in value in terms of real price may in fact be negligible.
As an investor, the real price of a piece of property is typically a
much more important measure than the nominal value of a piece of
property. This is because you will be holding the piece of property for a
period, and the nominal price does not accurately represent that
property’s value, making it difficult to determine whether or not
something is a good investment.
By assessing the real value of a piece of property (or its value as a
buy-to-let property) you can more accurately determine whether it is a
good investment, and can assess whether or not it can be expected to
increase in value over time.