Which principle states that when similar properties are available, prices are driven down?

The principle of competition is foundational in real estate economics, referring to the idea that when numerous similar properties are available in the market, the prices for those properties tend to be driven down. This occurs because buyers have more choices, leading them to compare properties and potentially choose more favorably priced options. As sellers compete for buyers, they may reduce their asking prices in order to attract interest, which consequently lowers the overall price levels in that segment of the market.

Understanding this principle helps investors and real estate professionals gauge market dynamics; if a market becomes saturated with similar properties, one can expect a decrease in prices unless unique factors distinguish certain properties. This principle balances the market, maintaining fairness and accessibility for buyers, while keeping sellers attuned to market pressures. It's essential to recognize how competition influences pricing strategies and ultimately reflects supply-and-demand relationships in real estate.