Property ValuationIntermediateAlabama Exam

The principle of 'regression' in real estate value states that:

AProperty values always decline in a declining market, though specifics can vary by situation

BA higher-priced property is pulled down in value when surrounded by lower-priced propertiesCorrect

COlder properties always lose value

DOverimprovement is always beneficial

Why A higher-priced property is pulled down in value when surrounded by lower-priced properties Is Correct

Answer B: A higher-priced property is pulled down in value when surrounded by lower-priced properties

The principle of regression holds that a superior property is negatively affected (pulled down in value) when located among properties of lesser quality or value. This is the mirror opposite of the principle of progression.

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.

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Key Terms to Know

Appraisal

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

Comparable Sales (Comps)

Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.

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.

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