Property Valuation
The principle of REGRESSION states that:
AProperty values always decline over time
BA higher-value property's value is pulled down by being near lower-value properties✓ Correct
CThe income approach is more accurate than the sales comparison approach
DImprovements always lose value equal to their cost
Explanation
The principle of regression holds that a higher-value property suffers in value from proximity to lower-value properties—the 'best' house in a poor neighborhood is worth less than if it were in a comparable neighborhood.
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Key Terms to Know
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.
DepreciationA reduction in the value of an improvement (building) over time due to physical deterioration, functional obsolescence, or external factors.
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