Property ValuationIntermediateCalifornia Exam

The concept of 'regression' in real estate appraisal means:

AA decline in property values across an entire market, under standard appraisal methodology

BThe value of a superior property is diminished by its association with inferior surrounding propertiesCorrect

CThe value of an inferior property is increased by proximity to superior properties, as typically applied in a comparative market analysis

DA reduction in appraised value due to functional obsolescence, consistent with USPAP appraisal standards

Why The value of a superior property is diminished by its association with inferior surrounding properties Is Correct

Answer B: The value of a superior property is diminished by its association with inferior surrounding properties

The principle of regression holds that a higher-valued property located among lower-valued properties will be pulled down in value. Its counterpart, progression, holds that an inferior property gains value when surrounded by superior properties.

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.

Key Property Valuation Terms in This Question

Appraisal

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

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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.

Depreciation

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

Comparable Sales (Comps)

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

Loan-to-Value Ratio (LTV)

The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.

Math Concepts

Profit & Loss

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