What does "effective demand" refer to in real estate appraisal?

Effective demand in real estate appraisal specifically refers to the immediate amount a consumer can pay for a property, reflecting not just interest but the actual purchasing power of potential buyers in the market. This concept emphasizes that it's not enough for buyers to want a property; they also need the financial means to make a purchase.

Understanding effective demand is crucial for appraisers as it influences property values and market trends. An appraisal considers this factor to provide an accurate assessment of a property's worth, as it reveals how much buyers are prepared to spend given current economic conditions, financing options, and their personal financial situations.

In contrast, while the total number of interested buyers could indicate market activity, it doesn't quantify their capability or willingness to transact at specific price points. The future potential value of a property focuses on projections and broader market trends, whereas average historical prices primarily reflect past sales without considering present buyer capabilities. Thus, the focus on immediate purchasing power distinctly qualifies effective demand within the context of real estate appraisal.