Florida Real Estate Broker ExaminationValuation and Market AnalysisEasy
A developer is performing a market analysis for a new residential subdivision. The analysis reveals a significant increase in the average household income in the area, coupled with a decrease in the number of available buildable lots. This combination of factors is most likely to lead to:
- AA shift in demand towards commercial properties over residential.
- BA stabilization of property values as demand balances supply.
- CAn increase in property values due to strong demand and limited supply.
- DA decrease in property values due to oversupply.
Show answer & explanationAnswer & explanation
Correct answer: C. An increase in property values due to strong demand and limited supply.
An increase in average household income signifies higher purchasing power and demand, while a decrease in available buildable lots indicates limited supply. According to the principle of supply and demand, high demand and low supply generally lead to an increase in property values.
Why the other options are wrong
- A. The scenario describes residential factors; there's no information to suggest a shift to commercial.
- B. Stabilization occurs when supply and demand are balanced, which is not the case with increasing demand and decreasing supply.
- D. Oversupply would lead to a decrease in values, but the scenario describes limited supply.
Supply and Demand (Impact on Value)
The economic principle stating that the value of real estate is determined by the interaction of the availability of properties (supply) and the desire/ability of buyers to acquire them (demand).
- High demand + low supply = increased prices.
- Low demand + high supply = decreased prices.
- Market equilibrium occurs when supply and demand are balanced.
Memory trick: Supply and demand dance, prices follow their steps.