It is interesting to note that to some extent the real estate market place is distinctive as it does not include a number of features of the usual bazaar for business transactions. For instance, one major different between the real estate market and the other selling markets is that unlike in any other market, the real estate marketplace does not have a place where the sellers display their goods or wares for the buyers to look for merchandise to purchase. Apart from this major uniqueness of the real estate marketplace, six other dissimilarities are discussed in brief below.
In the real estate market there is no such thing as a standard product as no two properties can exactly be identical at any given time. This holds true even for the new sub-divisions where the construction firms build several houses with almost the same construction design and each house eventually has something different depending on the requirements of the owner.
However, despite being physically dissimilar from one another, from the financial point of view, there may be many houses that could be exchanged owing to their somewhat similar utility. For instance, there may be six residential properties that are dissimilar from one another in their exteriors, form and environmental location, but still be clubbed in the same price range. This is because all these six houses are bungalows with six rooms have the same size or area, comprising three bedrooms, having similar compound size and constructed following the same building rules. The utilities of all these six houses would be more or less the same. Nevertheless, there may be slight differences in their respective prices owing to the age of the buildings, their maintenance, added characteristics and facilities and even the geographic site.
It is important to note that real estate deals also take place between different provinces as well as internationally. Despite this, the real estate market mostly continues to be local in nature owing to the simple fact that a real estate property is an essentially immovable commodity. There may be instances when the proprietorship of a property is transferred to a person from outside the neighborhood, however, real estate transactions mostly take place within the community and this establishes the demand and supply, which in effect, determines the cost or worth of a property. As a result, real estate marketing persons in one city of Canada are basically involved with the market situations in that particular area and hence also ought to be familiar with the prevailing real estate marketplace conditions in that area. In other words, the real estate sales persons in one community may not have or need not have precise knowledge of the real estate markets in other places in the country.
Everyone is aware of the fact that unlike many other vending items, realty is one such article of trade that cannot be carried to the buyer for sale. On the contrary, being a fixed commodity or stationary at one place, it is essential that the buyers willing to acquire a real estate property will have to come to it. In the case of a real estate transaction, the location of the property is the bazaar, while the discussions or bargaining is held at an office, in most cases the office of the brokerage or the sales person. However, the final deal or sale in concluded at the property site.
It is important to note that a number of real estate boards offer the Multiple Listing Service (MLS) enabling some amount of methodical procedures in marketing real estate properties. However, even this is does not offer much help while dealing with large-scale business or a centrally regulated methods outside the neighborhood stages, owing to the permanent location of the properties as well as the absence of any standard commodity in the real estate market. Despite the fact that people may view the Multiple Service Listings on the Internet, marketing of real estate properties still continues to be a predominantly neighboring feature.
It is a general practice to slow down or halt the production of any commodity promptly when it is in excess supply. Normally, when the supply available in the market is used up, the market looks for equilibrium between demand and supply and new supplies are made. However, this system is hardly ever accurate in real estate business. In real estate business, several building projects are undertaken or started when the demand for property is more. Although these projects are completed somehow when the market conditions change and the demand plunges, they eventually lead to a surplus supply of properties in the real estate market. Unlike other commodities which are perishable, real estate properties are resilient and stay put in the market. In contrast, there is no immediate way out when there is an unexpected and swift rise in demand for real estate properties in the market, as it takes a considerable period of time to plan, fund, develop and erect new constructions.
Normally the outcome of any real estate transaction is not made public as buying a property is basically a private affair between the buyer and the seller. Nevertheless, data regarding the proprietorship of any real estate property is available by means of deeds recorded with the regional land registration offices.
Any market is more often than not set up to operate as catalysts in the trade of commodities or services. In typical situations, a marketplace is a hub of delivery/ supply, an evaluation method as well as a focal point for regulatory functions covering the neighborhood, province and even the country in general.
In all financial systems that are founded on money, commodities/ goods are traded for money and money too is traded for commodities. The same rule holds true for the real estate market where the commodities comprise land or buildings and the course of trade leads to the production and allotment of assets consistent with the choice of the people (buyers and sellers) in the market and their monetary means. Hence, the utility or functions of a real estate market includes reallocate the accessible properties, source an augmentation in the making available new properties, establish the usage or utility of all properties as well as determine the market value or price of all such properties.
It is important to remember that the real estate marketplace is susceptible to the changes in the financial, political and societal powers that have an influence of the demand and supply for real estate property. A few of these important effects/ influences are discussed in brief below.
The housing units are basically meant for families, who are their main consumers. For instance, when a young man separates from his family to marry a girl hailing from another family, their matrimony or the couple establishes a third family. In most cases, a new couple sets up a new family in a new house and by this means consume a new home or a unit of a residential property. This system is called the family formation rate.
It has been seen that generally the demand for house goes up during the times of affluence and enhanced employment opportunities. During such times, new home owners enter the real estate market to purchase their first homes, while people who already own a house look forward to purchasing a larger and better home. There is an exactly opposite situation to this too. Despite the fact that employment insurance programs have largely reduced the negative impact of unemployment and layoffs on the real estate market, high rates of joblessness, being without jobs or economic recession for a considerable period of time still adversely influences the real estate market. Several other factors, such as pensions and different social security programs, have reduced the undesirable influences on the real estate market in times of economic distress. These days, enhanced life expectancy has enabled senior citizens to remain home owners even after retirement. However, in most cases they usually sell their larger homes to purchase smaller dwellings or live in apartments.
A lender always grants a loan depending on his or her trust on the borrower as well as the security or collateral offered by the borrower against the credit finance. And this holds true even for loans available or sanctioned against the security of real estate property. In fact, in this case a lender will only offer a loan to the borrower when he or she is confident that the real estate property is reliable, it capable of maintaining its market value and the borrower will earn enough money to be able to make repayments against the credit or mortgage.
Whenever the interest rates on loans go up, it has an adverse effect on the real estate market. In such situations people drop their plans to acquire new property through credit finance and decide to continue living in their existing residences. In brief, since debits often constitute a major element in buying a new house, any noteworthy rise in the interest rates expressly affects the real estate market. However, when the interest rates are small, people desiring to purchase new homes find mortgages within their means and hence, the real estate consumers also response positively.
The value of real estate properties are likely to be reduced owing to extensive building construction activities as this would lead to fresh and surplus supplies in relation to the prevailing demand in the market. Hence, the prices of real estate will witness a falling trend if the increasing supply is not evenly matched with a growing demand among the consumers. On the contrary, any sudden demand for real estate is bound to lead to a spurt in prices in the absence of adequate supply. It must be mentioned here that the real estate practitioners often find it difficult to meet such sudden rise in demand since the problem cannot be solved overnight. It consumes considerable time and enough funds to start new building projects to meet the new demand in the real estate market.
The real estate bazaar comprises three major types of markets - seller's market, buyer's market and the balanced market. Each of these types is discussed briefly below.
When the number of people (buyers) desiring to acquire property surpasses the supply of homes or property, it is called a seller's market. In brief, the sellers dominate this type of market that is distinguished by residential accommodations that trade off promptly, growing prices, a large number of buyers hunting for homes and a negligible catalog of homes offered for sale. Such distinctiveness of this type of real estate market denotes that the buyers have to be prompt in taking decisions regarding purchase, have to cough up more money for acquiring a home and will often find that their purchase offers are declined by the sellers.
A buyer's market is just the reverse of a seller's market as in this type of market the number of homes available for sale exceeds the number of buyers desirous of acquiring new properties. In other words, in a buyer's marker the demand is less than the supply. The typical features of a buyer's market include extended selling periods for property in the market, more homes on sale compared to the number of buyers, long list of homes awaiting sale and stable or falling prices of real estate. In such category of a market the buyer is at an advantageous position to negotiate the price of homes, has an extensive choice of homes to acquire and even enjoys the benefit of taking his or her own time to search for a suitable property before making a purchase.
The name 'balanced market' itself suggests that in such type of a real estate the supply of houses available for sale and the number of buyers desiring to acquire new homes are somewhat evenly poised. The primary traits of such type of real estate market includes a balanced ratio between demand and supply, properties being sold within a practical time frame, normally stable prices of properties and sellers accepting realistic purchase offers from the buyers. In general, the environment in a balanced market is normally more calmed down.