Which appraisal principle best explains an increase in rental rates when properties are in demand?

The principle of supply and demand is essential in explaining the dynamics of rental rates in relation to property demand. This principle states that when demand for a good or service increases, and supply remains limited or does not increase correspondingly, the prices or rates associated with that good or service tend to rise.

In the context of rental properties, when more people are seeking rental accommodations in a particular area, but the number of available properties does not increase at the same pace, landlords may raise rental rates. This occurs because of the heightened competition among potential tenants who are willing to pay more for a limited supply of available rentals. Therefore, the relationship between the increase in demand for rentals and the resulting increase in rental rates is a direct application of the principle of supply and demand.

This understanding is crucial for anyone in the real estate or property management fields, as it underscores how market conditions can affect pricing strategies and investment decisions.