Real estate valuation is defined by economic, legal, and financial factors which make real estate distinct from other commodities. Commercial real estate valuation and residential appraisal services are required to calculate how these factors affect the price of real estate and how it drives the real estate market.
Here are 5 economic principles of real estate valuation:
Demand and Supply
Real estate valuation is significantly affected by the demand and supply of real estate properties. For example, the demand for sea-facing properties is very high versus its supply; hence these properties are in greater demand, leading to an increase in their prices. Vice Versa, if there is an oversupply of residential properties, the demand will reduce, and consequently, the real estate value and rents will go down.
Substitution
The value of any property is established in comparison to other desirable similar properties. In theory, buyers will not desire to pay more for any property than what it would cost to obtain similar real estate properties with equal appeal and utility.
Principle of balance
This principle refers the relationship that is between the principal cost added expenditure incurred on the property and the value it returns. The principle states that for every dollar invested in the value of the property, its value should increase by more that one dollar.
Principle of progression
This principle states the real estate valuation of your prompt will depend on the perceived value of a location, and it will slate with the increase in the perceived value of your site. For example, if you are living in a house that is old and craggy, but your neighborhood has homes with the newly renovated apartments, then the price of your property will also increase because of the increase in the value of other homes in your location.
Principle of regression
This principle is exactly the opposite of progression principle. The idea behind regression principles that the real estate valuation of your property will be reduced if the perceived value of the home in your location is reduced. For example, even if you have renovated your home, and it is the best house on the block in a neighborhood of hurricane-hit homes, the value of our home will decrease.
On the face of it, real estate valuation might seem very simple. However, it is a complicated process that requires detailed planning and expertise. You will need professional residential appraisal services that will help you handle your real estate valuation expertly.
