Can Value in Real Estate be created, artificially?

In our last post – “Valuation of Real Estate: How can you value your RealT?” we touched upon the parameters one should look for while valuing a Real Estate property. Today let’s discuss if it’s possible to create the value artificially?

Creating Value – What it means?

Creating value in its generic terms means – artificially manipulating the price of an asset.

Take for example:

  •  “Black Tickets”: You went to watch your favorite movie, say Iron Man, in the nearby theatre. Due to unavailability of seats, you are denied the tickets. But then an agent comes to you, offering tickets for the movie at a premium of 25%: He has created the value artificially.
  • Polished Antique”: You found an antique while roaming in the fields. It resembles nothing, but a broken stone. You go to market to sell it & you will not even receive peanuts in its exchange. But the moment you have polished it and packaged it nicely, you will get jaw-dropping quotes for the same piece. Here you have created the value artificially.

So to put in very nominal terms, creating value is nothing but adding & utilizing factors that affect the ultimate value of the asset.

Artificial Value in Real Estate

In our last post we mentioned the parameters that affect the value of Real Estate:

Now if one wants to create value artificially, he will definitely have to manipulate the above factors for the same. Let’s see how:

How to Manipulate?

  • Play with the buyer’s psychology. If the buyer is interested in making money out of this property, show him the channels. Project your property as a great prospect deal for a Hotel or Hostel.
  • If he is just looking for a comfortable stay, show him the prospects of luxurious property.
  • Once you have convinced the buyer on this, you have created the value!
Demand & Supply

  • These are the parameters which builders manipulate the most.
  • Demand is manipulated by quoting unreasonably high pieces. By doing so, builder creates an impression of high prices in the region.
  • Moreover builders posts high bids for their properties on the internet, impersonating themselves as buyers to create artificial demand.
  • Supply is manipulated by incorrectly projecting the number of units remaining in a project.

  • Manipulation in this aspect depends on the network you have. If you have a well-established network of brokers and agents, you can ease out the transaction and hence create value in the deal.

  • This is as simple as “polishing the antique”. You polish, renovate and beautify your property and charge as much as 25% more on an investment of 10%!!

Closing Remarks: Listed above are some of the ways in which a person can create the value in Real Estate, artificially. But it’s better not to underestimate the cognizance of buyer! ;-)

------ Thanks for reading RealT Horizon J ------

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