Since the early days of real estate, prices have been determined by how much supply there is in the market and what demand people have for homes. If there are more homes available than people looking to buy one, then this creates an imbalance that must be corrected.

This happens when individuals and businesses need or want a home but can’t find one they like enough to pay a premium price for it. They will therefore look elsewhere for their needs, which decreases sales volume.

When this occurs frequently, we refer to this as a “seller’s market.” Because there are fewer sellers than buyers, this gives them an advantage over the competition.

A seller’s market only lasts so long before things even out again.

Demographic factors

how are real estate prices determined

One of the biggest determining factors in real estate prices is demographics. This includes things like how many people live in an area, how much money these individuals have, and what type of jobs they are able to find.

If there are too few young professionals in your area, then it will be difficult to maintain strong property values. Similarly, if there are not enough families with children, then you will struggle to get house hunters that are looking for homes with lots of kids.

And if there aren’t enough wealthy individuals, then it can make buying or selling a home very expensive as you would need to negotiate hard on the price.

Another major factor is whether or not there are adequate numbers of both renters and homeowners. If there are more owners than renters, for example, then you may face tough competition when trying to sell your own home.

Existing conditions

how are real estate prices determined

One of the major factors in determining real estate prices is how much land there is available to build onto or upgrade an existing property. If there’s not very much open space within a city, then buying an empty lot could be our friend as house prices continue to climb.

In some cases, overdevelopment can become a problem if people are no longer willing to live close to where they work due to excessive noise, pollution, and traffic. In these situations, the cost of living becomes too high for most people which results in lower demand for homes (and thus, lower home prices).

Another factor that affects real estate prices is whether or not there’s enough water to support growing populations. Land with access to fresh water is more desirable than land that doesn’t have easy access to drinkable liquid. This applies particularly in areas that get frequent rainfall because you can still grow crops even if parts of the soil are dry.

Running out of water can be disastrous if it’s used for human consumption so making sure we’re never at risk of thirst is another reason why having accessible water is important to real estate pricing.

Builder preferences

how are real estate prices determined

As we have mentioned before, one of the main reasons that you will find homes with different styles is due to the personal tastes of the builder. A developer or homeowner may prefer building certain types of houses over others for any number of reasons.

They may like what they experienced in learning how to build and take advantage of those experiences by incorporating some of these designs into their own home. They could also be very popularized in one style and so they choose to repeat that shape frequently as well.

Another reason might be that they do not have too much money at this stage in life and so they choose to focus on creating a house that they can live in themselves rather than investing in more expensive materials.

You will always find lower cost homes that use less luxurious material because there are currently no companies producing them.

Homeowner preferences

As we mentioned before, where your house is located can make a big difference in how much it sells for. If you live close to popular restaurants or shopping areas, this will help its price.

If there are public parks nearby, that will also add value to the property. People who live near good schools want to be closer so their children can attend easily, which makes investing in real estate more attractive.

Landlords look at how well connected an area is when deciding whether to offer a rental apartment or not. They consider how easy it would be to get to work if they lived here.

Homeowners prefer living in safe environments, so safety of the community is important to them. This could mean choosing from between smaller homes or larger ones, or both- depending on what size home you desire.

Business owners evaluate how accessible different locations are for their workplace, and then decide on the best one based on budget and timing.

Realtor’s like to promote their local expertise, as people will trust their recommendations more. Realtors gain social capital through relationships with other members of their industry, as well as clients, making it easier to market their properties.


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