Property ValuationIntermediateCalifornia Exam

The principle of progression states that:

AA property's value will decline if surrounded by lower-value properties

BA lower-value property benefits from being located near higher-value propertiesCorrect

CProperty values always increase over time

DImprovements always add value greater than their cost

Why A lower-value property benefits from being located near higher-value properties Is Correct

Answer B: A lower-value property benefits from being located near higher-value properties

Progression holds that a less expensive property can increase in value when located among more valuable properties. Its counterpart, regression, holds that a higher-value property's value is depressed by nearby lower-value 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.

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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.

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.

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