Principles Controlling
Real Estate Value

Principle of Supply and Demand
Value increases as more and more people compete for the available housing. Population growth, ability to pay and the relative scarcity of housing all affect the value of a home.

Principle of Anticipation
A home has value proportionate to the anticipated enjoyment of the home. For example, most high quality residential properties in exclusive areas sell at a premium price that reflects the buyer’s desire to enjoy whatever future social or physical benefits that property may produce. That enjoyment may include, among other things, a quiet, natural setting in an area of large estates, or the social satisfaction of an exclusive address or proximity to desirable schools. The appearance and the condition of the surrounding homes can have a dramatic effect, either positive or negative, on the value of a particular home.

Principle of Substitution
A buyer will not pay more for a particular house than the cost of buying a similar property provided that either of the two homes would suit their needs and the properties are for all practical purposes identical.

Principle of Regression
A large, custom, quality constructed home will tend to lose value if it is built in a neighborhood of smaller, inferior homes.

Principle of Progression
A small home of inferior construction will tend to gain value if it is located in an area of large custom-built homes.

Principle of Conformity
A reasonable degree of conformity results in maximum value. A home located in an area of homes of similar size, style and quality will positively affect its value. Often homes of varying architectural styles are located in one neighborhood, especially in an area of exclusive individually designed homes. However, there is usually conformity in either the economic or sociological sense in that the homes are of similar price and size or are owned and occupied by people in similar economic and social positions.

Principal of Competition
Excessive profits result in ruinous competition. A recent example occurred in 1990. Many homeowners attempted to cash in on the tremendous perceived profits they could make if they had sold their home. A record number of owners put their homes on the market for sale. The supply of available homes for sale in this area increased 20 fold and prices fell for several years.

Principle of Decreasing Returns
There is a point at which added improvements will not produce a worthwhile increase in the value. Adding a swimming pool, outdoor brick barbecue and patio, screened lanai and even new carpeting and drapes may not yield a worthwhile return when a home is sold. Attitudes, desires and tastes differ so greatly that a seller generally does best by leaving as many personal touches as possible for the buyer to install to suit themselves. Ask for our advice about preparing your home for sale.