When market demand is greater than market supply there is excess demand and price tends to increase. In conventional appraisal market terminology, that condition is best described as:
Correct Answer
D) Seller-favored conditions with upward price pressure
When effective buyer demand exceeds available competitive supply at prevailing terms, sellers may have stronger bargaining positions and there is upward price pressure. This describes a seller-favored condition, not a universal precise forecast of transaction prices.
Why This Is the Correct Answer
Option D is correct because when market demand is greater than market supply there is excess demand, causing price to increase. Sellers gain bargaining strength, so the condition is described as seller-favored with upward price pressure.
Why the Other Options Are Wrong
Option A: Buyer-favored conditions caused by excess supply of homes
Option A, buyer-favored conditions caused by excess supply of homes, describes the opposite situation. The stem states demand exceeds supply, not that supply is in excess.
Option B: Exact equilibrium between supply and demand
Option B, exact equilibrium between supply and demand, contradicts the stem. Demand greater than supply is a disequilibrium with upward price pressure.
Option C: A market unaffected by demand or supply
Option C, a market unaffected by demand or supply, is inconsistent with basic economics. Price is determined by the interaction of demand and supply, so the market is clearly affected.
Too many buyers favors sellers
When buyers outnumber available homes, sellers hold the advantage and prices tend to rise.
How to use: Use this to label markets as seller-favored or buyer-favored.
Exam Tip
Identify which side is in excess: excess demand favors sellers, excess supply favors buyers.
Common Mistakes to Avoid
- -Reversing seller-favored and buyer-favored conditions
- -Calling excess demand an equilibrium
- -Treating a market label as a precise price forecast
Concept Deep Dive
Analysis
This question tests the terminology for a market where demand exceeds supply. Excess demand causes price to increase and strengthens sellers' bargaining positions. In conventional terms, this is a seller-favored market.
Background Knowledge
Price results from the competitive interaction between demand and supply. Excess demand tends to push prices up and gives sellers stronger positions; excess supply does the reverse. These labels describe pressure and direction, not precise price forecasts.
Real-World Application
An appraiser sees homes receiving multiple offers above list price and very low inventory. She describes the market as seller-favored and supports a positive market-conditions trend with sales data.
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