What role does demand play in property value determination?

Demand plays a critical role in determining property values because it reflects the level of interest buyers or renters have in a particular real estate market or property type. When demand is high, it typically indicates that more people are looking to buy or rent properties, which can drive up prices as buyers compete for a limited supply. This competition often results in increased property values as sellers can ask for higher prices.

Conversely, when demand is low, there tend to be fewer buyers in the market, which can lead to a surplus of available properties. In such scenarios, property values may decrease or depreciate because sellers may need to lower their asking prices to attract buyers. This inverse relationship highlights how fluctuations in demand directly impact real estate values and overall market health.

The notion that demand only affects luxury properties does not fully capture the broader market dynamics, as demand can influence all property types across different price ranges. Similarly, the idea that demand does not influence rental properties overlooks the fact that high demand for rentals can lead to increased rental rates and property values in the investment marketplace. All property types are subject to the principles of supply and demand, making it a foundational concept in real estate valuation.