Which economic principle says that value is created and maintained when the characteristics?

6 Economic Principles That Affect Real Estate Valuations

Characteristics Of Real Estate Market

Real estate is different from other commodities. It is defined by economic, legal and financial terms. Real estate market is a part of a regional and national economy. Any changes in these influence the real estate market.The demand to possess property to meet the needs of individuals, business and, institutions creates an economic value of real estate. Property rights are traded in their typical markets having characteristics of their own. These are influenced by techniques of marketing and transactions.

Unavoidable Risks

Real estate markets are continuously adjusting to an equilibrium where price is adjusted according to variations in demand and supply and also influenced by changes in national and regional economies.All these complex characteristics make real estate dealings risky. The risk is further heightened by the involved significant capital cost.Such transactions also require the need for legal recognition of ownership with the rights of occupation. The legal rights, the ability to trade and transfer those rights, ownership, and possession make real estate uniquely different from other assets. Real estate is also subject to market risk, financial risk, and business risks.

Why Valuation/ Appraisal

Assessment is needed to calculate a prediction of price-taking clues from the market forces, factors of finance, accounting, economics, and law driving the real estate market. Real estate valuation is the force behind the real estate businesses. The process of real estate valuation is also known as real estate appraisal.

The Economic Principles Affecting Valuation

The value of a property is affected by certain economic principles.
Some of these are …

1. Principle of Anticipation
Buyers buy properties for future benefits. The principle says that value rises using anticipated benefits (money or amenities) to be gained from a property in the future. For example…You purchase a home with a pool for $190,000. A similar home without pool sells for $140,000. Effectively you pay $30,000 for anticipated benefits of the pool, not its cost.

2. Principle Of Demand, Supply, and Desire
The scarcity of a commodity influences its value by creating a greater demand for the item. For example, as the supply of ocean facing property diminishes its value increases to meet the demand. Demand is also affected by desire. If there is an oversupply of apartments in a given area, the demand will reduce. The values and rents will go down.

3. Principle Of Substitution
The value of a property tends to be set at the cost of an equally desirable substitute property. In theory, no one should pay more for a property than what it would cost to obtain a site by purchase and sale and to construct a building of equal appeal and utility.

4. Principle Of Balance
This principle refers to the relationship between cost, added cost and the value it returns. For each dollar invested, the value should increase by more than one dollar.

5. Principle Of Progression
The idea behind this principle is, the price of a property escalates with an increased perceived value of a location. For example, if you are selling an old house, but the surrounding homes in the area are renovated and thereby have increased in value, the price of your property will also be pulled up because of its location.

6. Principle Of Regression
This is the opposite of progression principle. The price of a property decreases with a reduced perceived value of a site. For example, even if you have the best house in a neighborhood of storm- hit homes, the value of your property will go down.

In case if you need to go for any real estate valuations take the help of a professional, experienced real estate agent, well versed in the minutest details of real estate appraiser. A good agent will be the one who can handle your real estate valuation whether for financing, divorce proceeding, partition suits, equitable distribution, partial interest, or inheritance tax purposes.

You can try out RD Clifford Associates. They can give you exceptional services on time, at competitive market rates as well.

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