Dynamics In Real Estate Values

If you're considering buying a real estate property, it pays to understand the workings of the industry so you would know when you should make your purchase. This will become more important if you are planning to become a real agent yourself.One major consideration when buying properties as an investment is timing. This understanding will include your comprehension on some economic principles so that you can understand the dynamics in the values of real estate properties.

Before anything else, let's start with defining some important terms. Value is the use or characteristic of a property to gratify a person's desire or have control over other properties in exchange. Value has three elements. Scarcity is under the notion that when the property becomes rare, its price increases. Utility is the next element which refers to the property's use. Third is the demand which is under the notion that when many people need something, the price of that something increases.

Cost is the blend of factors of production to produce development. It may be directly or indirectly proportional to value depending on the wisdom behind it. It also depends on the things that were done to the property in the course of time. Price is the expression of a person's desire for the property in terms of money. It may be higher, equal to, or lower than the value depending on the buyer's information, whether he was coerced to do it, or depending on how much money he's got.

Value is also guided by economic rules. When the value of a property is directly proportional to its use is under the highest and best use rule. Value is produced from the most plausible use of the property. It current use is not necessarily its highest value.

The next is the rule of substitution. In theory, every good or service has a replacement or option. The highest value of a property is placed by the cost of attaining an equally attractive and precious alternative property, assuming that there was no costly setback in getting such property.

The next is the rule of conformity which says that a house will have a higher value if its size, condition, age or style is the parallel to other houses in that area.

The rule of progression states that the value of a house of a lesser quality will appreciate if associated with other houses with a higher quality in the same vicinity.

The rule of regression, in the same note, follows that a property of higher quality that is located in a neighborhood of houses of lower quality depreciates to the same value as that of the said neighborhood.

Last is the rule of increasing and diminishing returns. According to Anne Robert Jacques Turgot, "When one of the factors of production is held fixed in supply, successive additions of the other factors will lead to an increase in returns up to a point, but beyond this point returns diminish." Therefore, as successively greater augmentations of land, labor, management, or capital are applied to a property a greater yield is created until a summit is reached then there is a decline.

About the Author

If you want a deeper understanding of how the industry works, enroll in a real estate seller agent and buyer agent basic course and be among the best realtors. But if you just want to buy a house without a realtor or with one, it would pay to know what these professionals know so when it's your time to shine in the world of real estate as an investor, you'll be ready for it.

Author (clientarticles@seoarbiter.com). Submitted on Wed, 4 Aug 2010 Time: 4:24 AM

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