Misconceptions

• The primary error that many people make when it comes to real estate is the idea that property has some sort of intrinsic value. This economically invalid belief is often spread by realtors and other people in the real estate industry to encourage people to pay higher prices for property. A thing is only worth as much as the market is willing to pay for it--no more and no less. Historical prices are a guideline at best and completely unhelpful at worst.
  
  

Identification

• Property values are determined by a number of factors, the most important being how many people are interested in purchasing it at a certain price. This is defined as "demand." The other primary determinant is the number of available properties on the market are similar in nature to the real estate in question. This is defined as the "supply." The higher the demand relative to the available supply, the greater the price will increase. The opposite is true as well.
  
  

Considerations

• Determining a fair price for a property is a complex process that should ideally include some vigorous negotiation between the buyer and seller. Some important local indicators to look for when determining whether a price can be negotiated higher are lower are vacancy rates, economic projections, employment numbers, average time a house is on the market, the average age of the population and the crime rate trends. Each of these factors influences price movements in a particular area.
  
  

Prevention/Solution

• Never take a property assessment at face value. Granted, many assessment agents have years of experience, but even so, an assessment is only a projection made by a single analyst without direct exposure of the property in question to the market itself. An assessment is made based on the current going prices of similar properties, but by definition it cannot name the exact price that can be expected from the market itself.
  
  

Benefits

• Taking a long term view of local trends and doing research about the history of a neighborhood can end up paying off substantially in terms of real estate investment. No one would advise someone to invest in a single stock without researching the fundamentals of the company, but unfortunately, many real estate advisers only talk about current prices and price trends rather than encouraging buyers to examine the fundamentals that actually drive those prices.
  
  

Potential

• A superior understanding of the meaning of property value carries tremendous benefits for real estate investors. Many property owners believe that the market should come to meet their price, when the reality of the matter is that the price must alter to meet the market. Greater intellectual and emotional flexibility creates magnificent additional opportunities on the property markets. Holding onto an asset for too long--or not long enough--and not adjusting prices to meet market conditions inevitably results in lower long term profits and higher opportunity costs.