Certified Residential Appraiser Practice Exam

Which factors affect the price of real estate?

1. Supply and Demand

2. Location only

3. Interest rates only

4. Immediate costs

The correct answer is: Supply and Demand

The factors affecting the price of real estate are most comprehensively encapsulated by the principles of supply and demand. This foundational economic concept suggests that when the supply of available properties is low and demand is high, prices tend to increase. Conversely, if the supply of properties exceeds the demand, prices are likely to decrease. This dynamic interplay between buyers and sellers is crucial in determining property values in any market. While other options address various aspects that can influence the real estate market—such as the importance of location, interest rates, and immediate costs—focusing exclusively on any one of these factors fails to capture the complete picture. Location is indeed a significant factor in property valuation, influencing desirability and accessibility, but it is just one element within the broader framework of market dynamics governed by supply and demand. Interest rates can impact affordability and purchasing power, which subsequently affects demand, but again, this is just a part of the wider economic context. Immediate costs can influence how buyers perceive value but do not encompass the ongoing market conditions that continuously shift. Understanding the overall influence of supply and demand provides a more holistic view of pricing in real estate, making it the most comprehensive answer to this question.