There's two components to real estate prices: the cost of the actual building (if any), and the price of the land. The building cost is measurable, and basical

There's two components to real estate prices: the cost of the actual building (if any), and the price of the land. The building cost is measurable, and basically equals the cost of rebuilding it (unless it's historic), and that's what you insure the property for. The rest is the land value, and that's determined entirely by the market, because land is not fungible. A quarter-acre in a prime metro-area neighborhood is likely worth much more than 100 acres in the middle of nowhere, because lots of people want to live there and are willing to pay for that privilege. So, if you find some property in downtown London that just has a crappy shack on it, it'll still be highly valuable just because of the location. A wealthy buyer can purchase it, then raze the shack and build something better there.