Which of the following is an economic force that affects the supply of real estate rather than the demand for it?
Correct Answer
A) Construction planned or in progress
Economic forces that affect supply include the availability of vacant and improved properties, rental and price patterns of existing properties, construction planned or in progress, and construction costs. Trends in employment and income and changes in a community's economic base, such as industrial expansion, are examples of demand forces.
Why This Is the Correct Answer
Option A is correct because construction planned or in progress is a listed economic force affecting supply. It represents property that will be added to the market's available stock.
Why the Other Options Are Wrong
Option B: Trends in local employment
Option B, trends in local employment, is a demand force: jobs affect how many households can afford and want property in the area.
Option C: Trends in household income
Option C, trends in household income, is a demand force because income determines buyers' purchasing power.
Option D: Industrial expansion in the economic base
Option D, industrial expansion in the economic base, is a demand force; growth in the economic base brings jobs and income that raise demand for property.
Supply is what gets built
Supply forces describe the stock of space, existing or coming; demand forces describe the people and money chasing it.
How to use: Use this when a question asks you to sort market forces into supply or demand.
Exam Tip
Ask whether the factor changes the amount of property available or the buyers' ability to buy; the first is supply, the second is demand.
Common Mistakes to Avoid
- -Classifying job growth as a supply force
- -Overlooking construction in progress when assessing future supply
Concept Deep Dive
Analysis
The question tests the split between supply-side and demand-side economic forces in market analysis. Identify which option adds to the stock of property rather than to buyers' ability or desire to purchase.
Background Knowledge
Appraisers study economic forces that influence present and anticipated demand for and supply of property. Demand forces include employment, income, financing and the economic base, while supply forces include available properties, existing price and rent patterns, construction in the pipeline and construction costs.
Real-World Application
In a market area analysis for a growing suburb, an appraiser lists new job growth as a demand factor and three subdivisions under construction as a supply factor, then weighs the two to judge whether inventory may rise.
More Market Questions
In market area analysis, what characteristic distinguishes a district from a neighborhood?
Under USPAP Standards Rule 1-3(a), which item must an appraiser identify and analyze when necessary for credible results in a market value assignment?
How does the Fannie Mae Selling Guide define a neighborhood?
Several homes in a neighborhood are vacant and boarded up. Which market force does Fannie Mae classify this as?
Infrastructure investment such as a new interchange typically affects nearby land by:
A city raises property tax rates and tightens building regulations. Which market force does Fannie Mae classify these as?
An appraiser believes, without market evidence, that a nearby group home lowers values. What does Fannie Mae require?
Which three categories are used to report the supply of properties in a Fannie Mae neighborhood section?
An appraiser is asked for a retrospective value opinion as of three years ago. When must the appraiser meet the Competency Rule?
Can mixed land uses in a residential neighborhood ever enhance home values, according to Fannie Mae?
People Also Study
Property Description
11.8% of exam
Land or Site Valuation
4.5% of exam
Sales Comparison Approach
16.4% of exam
Cost Approach
13.6% of exam
Income Approach
8.2% of exam