We have all heard the saying "What Goes Up Must Come Down". Every physical item we value is affected by 4 factors: Demand, Utility, Scarcity, and Transferability. These factors are related to one another and as one changes, it affects value. Let's look at these factors and then try to see how value changes.
Using the first letter of each factor we can see they form the acronym DUST.
Demand: This is the consumer's desire coupled with their ability to purchase an item. If we have the desire to purchase, but do not have the ability, we can only wish we had the item. The ability to purchase can be in the form of cash or financing that is available to purchase. Once we have demand, we can start shopping for the item we desire.
Utility: This is the consumer's belief that an item serves an useful purpose that is needed now or in the near future. Utility can be based on desire too. Months before Christmas, toy manufactures start advertising a new toy they will be offering and they try to get the attention of our children hoping, our children will tell us how necessary the toy is for them this Christmas.
Scarcity: This is the consumer's belief that an item will be offered in limited amounts or only offered for a short period of time so we need to act quickly if we expect to get one. Recently, the media told us that gasoline and food products would be in limited supply and we rushed out to get all we could before the prices skyrocketed.
Transferability: This is the process that the owner of the item has the legal ability to sell the item and transfer ownership to the consumer. In real estate, if the seller is unable to give the buyer a clear deed to the property, then the buyer would not have clear ownership and this could cause problems.
Now that you have a basic understanding of these factors, let's review some actual situations and see if you can determine which factors are involved.
Situation 1: You see an advertisement on the internet that a seller wants to sell his home in an area you desire to live in and the seller is willing to take a large discount because they must relocate immediately. You, acting as a buyer, are very interested until you find out the person offering the property is not the actual owner of the property. The price sounds good, but if they do not have the ability to sell, how would this affect your decision to purchase? What factors are involved?
Situation 2: You are negotiating with a property owner to purchase their vacant land and you have agreed on a price, but when you talk to your favorite lender, you find out that they only make loans up to 70% of the price you and the owner have agreed and you need a loan for 90% of that price. What factors are involved?
Situation 3: A home becomes available for sale in a neighborhood you wish to live in and appears to be priced reasonably, but when you contact the real estate agent to get further details, the agent tells you there are multiple offers on the property and if you would like to get involved you will have to offer your highest and best price just to have a chance to buy the home. What factors are at work?
Situation 4: In your search for a home, you are looking for a 5 bedroom home with at least 3 baths. In one advertisement, you read the property is identified as a 5 bedroom, 3 bathroom but when you go view the home, it is actually a duplex that has 3 bedrooms, 2 baths in one unit and 2 bedrooms, 1 bath in the other. You want all the bedrooms and baths in the same building and not separated into 2 units. What factors are presented here?
Real estate as well as most things we purchase today may not always be what we are searching for and this can affect our decision to purchase or how much value we believe an item has. Always consider these factors and give yourself time to make a decision. Making a decision in a hurry may be good, but often the old saying "If an item or the price seems to be too good to be true then it probably isn't".
Be sure to get more than one opinion about an item before you purchase, ask questions and have inspections made, read reviews and be careful. Feel free to call our office and determine if we are the right company to assist you with your real estate decisions.