[*Varda*]

I think it often depends on the character traits whether a character is realistic or unrealistic.

For example: Saruman. The idea of wizards coming across from the West seems, at first, to be unrealistic. But the traits Saruman shows, of being turned to darker things, being two faced, are things that affect us all at some point in our lives, and this makes it realistic.

All characters have some realistic and unrealistic elements to them, and the unrealistic elements just add to the magic of the story. Generally it really depends on setting and plot how far you can make the story unrealistic and still have people believe it.