Why real estate agents and property developers need to know some economics.

Some fundamentals

When the price (p) of a good is high, the demanded quantity (q) of that good by the market is low. Or, when there are more goods available for sale in the marketplace,  the willing-to-pay price of the market is lower. This phenomenon is shown in Figure 1, which is known as the demand curve.

For some goods, the change of price has less impact on the demanded quantity. This is known as inelastic demand (and vice versa).  This is shown in Figure 2. 

Good X and Y are substitues if they each can be used instead of the other. Having more of X will make the desire for Y less, and the price of X rises when the demand for Y rises (and vice versa). 

The demand for property

Each type of property has its own demand curve. Some properties have inelastic demand, while the demand curve of other properties is elastic.  

For each property for sale, there are comparable properties and substitutes.

Very often, similar properties are sold for significantly different prices within a constant economy and policy environment but sale dates only a few months apart.  Many of these cases can be explained by investigating into the fundamental economics, the demand. The findings will then provide guidance on when and how to sell for a real estate agent, and on what to build for a property developer.

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