39. Nando is helping a client figure out a listing price for their home. Because supply is low and demand is high in the subject property's area, Nando suggests the home is worth closer to the top of the price range suggested by the CMA. What principle of value is at work here?
Answer: D
The principle of competition is at work here.
Nando's suggestion that the home is worth closer to the top of the price range is influenced by the principle of competition, which suggests that in a market with high demand and low supply, properties will command higher prices.
A) principle of substitution
The principle of substitution states that a buyer will not pay more for a property than the cost of a similar substitute property. In this scenario, the high demand and low supply indicate that buyers are willing to pay more, which contradicts the principle of substitution.
B) principle of contribution
The principle of contribution refers to the value added by a particular feature or improvement to a property. While this principle may play a role in determining value, it does not directly address the overall market dynamics of supply and demand illustrated in this situation.
C) principle of conformity
The principle of conformity asserts that a property's value is maximized when it conforms to the surrounding properties in terms of style and use. Although conformity can influence individual property values, it does not account for the competitive market conditions Nando is addressing.
D) principle of competition
The principle of competition indicates that when demand exceeds supply, property values will increase as buyers compete for limited options. This principle aligns perfectly with Nando's assessment, as he recognizes the high demand and low supply in the area as a driving force for higher listing prices.
Conclusion
The principle of competition is the correct choice because it directly explains the market behavior in a high-demand, low-supply scenario, leading to increased property values. The other options fail to capture the dynamic at play here, as they either focus on specific property features or fail to address the competitive market conditions that influence pricing.