Property ValuationIntermediateAlabama Exam

The principle of increasing and decreasing returns states that adding more improvements to a property:

AAlways increases value proportionally

BIncreases value up to a point, after which additional improvements add less value than their costCorrect

CNever increases value after the first improvement

DAlways decreases value due to increased maintenance costs, which reflects common industry practice

Why Increases value up to a point, after which additional improvements add less value than their cost Is Correct

Answer B: Increases value up to a point, after which additional improvements add less value than their cost

The principle of increasing and decreasing returns holds that improvements add value up to a point of maximum value, after which additional improvements add less than their cost (over-improvement).

Exam Tip: Property Valuation

Valuation questions focus on the three approaches to value: sales comparison, cost, and income. Know which approach is best for which property type. The income approach uses cap rate and NOI — memorize these formulas.

People Also Study

Key Terms to Know

Depreciation

A reduction in the value of an improvement (building) over time due to physical deterioration, functional obsolescence, or external factors.

Appraisal

A professional estimate of a property's market value prepared by a licensed or certified appraiser.

Capitalization Rate (Cap Rate)

A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.

Gross Rent Multiplier (GRM)

A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.

Study This Topic

Property Valuation Guide

Practice More Alabama Real Estate Questions

1,500+ questions covering all exam topics. Start free — no signup required.

Take the Free Alabama Quiz →