What does excess profit in real estate typically lead to?

Excess profit in real estate generally leads to ruinous competition. This occurs when the profits generated from a particular real estate venture attract more competitors into the market. As more entities enter the market, they often attempt to gain market share by undercutting prices or increasing services, which can result in an oversupply of similar properties or services. This competition may ultimately diminish the profitability for all involved, leading to a situation where profits decrease as providers strive to attract customers through aggressive pricing strategies.

While increased property values, expansion of services, and higher demand from buyers are potential outcomes in a healthy and balanced market, excess profits specifically incentivize heightened competition, which can destabilize the market dynamics. Therefore, understanding the nature of market competition in relation to excess profits is critical for appraisers and real estate professionals.