Real Estate Council of Alberta Fundamentals Practice Exam

What principle states that value is created and maintained where there is equilibrium?

1. Principle of Change

2. Principle of Balance

3. Principle of Value

4. Principle of Demand

The correct answer is: Principle of Balance

The principle that states value is created and maintained where there is equilibrium is known as the Principle of Balance. This principle is rooted in the idea that a stable environment, where supply and demand are in equilibrium, leads to the highest and best use of a property, maximizing its value. In real estate, this means that when there is a balance between the number of properties available and the number of buyers or tenants looking for properties, market conditions are favorable and prices tend to stabilize. The Principle of Change refers to the idea that real estate values are constantly evolving due to various external factors such as economic conditions, societal trends, and technological advancements. While this principle acknowledges that change impacts value, it does not specifically address the concept of equilibrium. The Principle of Value encompasses the idea that value is determined by various attributes and principles but does not specifically highlight the equilibrium aspect as central to value creation and maintenance. The Principle of Demand focuses on the buyer’s desire for a property, stating that demand influences value. However, it does not directly address the balance between supply and demand, which is crucial in creating and maintaining property value. By understanding the Principle of Balance, one can appreciate how market stability contributes to property values and how fluctuations can lead to increased risks or opportunities in