Dictionary of Real Estate Terms: balance, principle of
balance, principle of
in real estate appraisal, there is an optimal mix of inputs that, when combined with land, will result in the greatest land value. Inputs, or factors of production, include labor, capital, and entrepreneurship.
Example: Suppose a subdivider was trying to determine how large building lots should be, by determining how much could be realized for the land at different densities of housing. She finds that 4 lots per acre is the proper balance because it yields the highest land value (see Table 3).
| TABLE 3 | ||
| LAND VALUES AT DIFFERENT DENSITIES | ||
| Lots per Acre | Price of Lot | Total per Acre |
| 1 | $25,000 | $25,000 |
| 2 | 18,000 | 36,000 |
| 3 | 14,000 | 42,000 |
| 4 | 12,000 | 48,000 |
| 5 | 9,000 | 45,000 |
| 6 | 7,000 | 42,000 |
