Describe the concept of "supply and demand" in real estate valuation.

The concept of "supply and demand" is fundamental to understanding real estate valuation. When demand for properties in a certain market exceeds the available supply, competition intensifies among buyers, which typically drives property prices higher. This principle illustrates the basic economic idea that as demand rises and supply remains constant or decreases, the value of properties tends to increase.

This dynamic relationship is crucial for appraisers as they analyze market conditions; they must consider how variations in supply and demand can impact property values. If more buyers are looking for homes than there are houses for sale, sellers can often set higher prices, thereby increasing the overall market value of real estate in that area.

The other options do not reflect the accurate interplay between supply and demand. For instance, ignoring buyer interest entirely or suggesting that property values are stable regardless of supply do not capture the reality that shifts in buyer interest and availability of properties can significantly impact values. Similarly, the idea that property values always decrease with increased demand misrepresents the nature of real estate economics. In fact, increased demand without proportional supply typically results in higher property values.