Real Estate Council of Alberta Fundamentals Practice Exam

Which principle involves the concept that market forces such as buyer interest and property quantity interact to determine market value?

1. Principal of Contribution

2. Principal of Increasing Return

3. Principal of Supply and Demand

4. Principal of External Factors

The correct answer is: Principal of Supply and Demand

The principle that involves the interaction of market forces such as buyer interest and property quantity to determine market value is based on the concept of supply and demand. This principle states that the demand for properties—driven by buyer interest—competes against the available supply of those properties. When demand is high and supply is low, property values tend to increase. Conversely, if there is an oversupply of properties and lower buyer interest, market values will generally decrease. This interplay directly influences market value, reflecting the economic forces at work within the real estate market. Understanding this principle is crucial as it serves as a foundational element in real estate valuation and market analysis, guiding both buyers and sellers in their decision-making processes. Other principles, like contribution or increasing returns, deal more specifically with the value added by specific components or improvement investments rather than the broad market interactions captured by supply and demand dynamics.