Property Valuation
What is the 'principle of contribution' in real estate?
AThe principle that each investor should contribute equally to a partnership
BThe principle that the value of an improvement is measured by how much it contributes to the overall property value, not its cost✓ Correct
CThe principle that all owners contribute equally to HOA expenses
DThe principle that sellers should contribute to buyer closing costs
Explanation
The principle of contribution states that the value of a component (or improvement) is what it adds to the whole property's value — not what it cost. For example, adding a $50,000 pool may only add $20,000 in market value if the market doesn't fully value pools.
Related California Property Valuation Questions
- What is the cost approach to value?
- Highest and best use is defined as the use that is:
- The income approach to value is most commonly used for:
- The 'highest and best use' of a property is defined as the use that meets all four of which criteria?
- When a property is over-improved relative to its neighborhood, the excess value added by the improvement is called:
- The 'highest and best use' of a property is defined as the use that is:
- Gross Rent Multiplier (GRM) is calculated as:
- Which type of depreciation is caused by factors external to the property, such as a nearby industrial plant?
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