The Fluctuation Of The Values of Real Estate

When you plan to buy a property, making sure that you understand how the dealings in the industry work is important before purchasing. 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. Understanding how this works will mean that you need to consider why the values of real estate properties change.

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. There are three elements of value: scarcity, the rarer the property, the higher its price; utility, how the property is to be used; and demand, the more people in need of it, the higher the price.

The blend of factors of production to produce development is referred to as Cost. The cost may be proportional to the value or not depending on the factors behind. 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.

Now, there are economic rules for value. 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. The highest value of a property may not be its current use.

The next is the rule of substitution. Generally, a corresponding replacement or option is given to every good or service. 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.

There is also what we call the rule of progression. This concept states that the value a house of a lesser quality will increase if the house is associated with other houses within the same neighborhood with higher quality.

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.

The rule of increasing and diminishing returns is a concept in economics that states that if one factor of production (number of workers, for example) is increased while other factors (machines and workspace, for example) are held constant, the resulting increase in output will level-off after some time and then decline. Although the marginal productivity of the workforce decreases as output increases, diminishing returns do not mean negative returns until (in this example) the number of workers exceeds the available machines or workspace. In everyday experience, this law is expressed as "the gain is not worth the pain."