An Attempt To Exemplify The Economic Principles In Real Property Valuation

Abstract The economic theory argues that the value of assets, including the value of real property, is influenced by many factors which determine the behavior of operators engaged in market transactions. The knowledge of basic principles and assumptions which underpin the development of value is essential to understanding the methods and procedures of valuation. The thesis, upon which the authors of this article based their theoretical and practical considerations, is formulated as follows: “The knowledge of economic principles of valuation improves the accuracy of valuation and allows for more appropriate interpretation of its results”. Therefore, these factors should be taken into account by appraisers estimating the value of property. Over a dozen so-called key principles of valuation have been formulated in literature. Among them are the principles of anticipation, change, substitution, supply and demand, competition, balance, highest and best use, conformity, and externalities. It is assumed that the most important principle in the valuation of property is the principle of anticipation. Some of the principles are relevant to all the traditional approaches to determining value, while others apply only to selected approaches e.g., the principle of opportunity cost, which is mainly used in valuations using the income approach. The thesis is supported by research results and an analysis of practical examples.