Property ValuationIntermediateCalifornia Exam

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

AProperty values increase over time in improving neighborhoods

BA higher-value property placed among lower-value properties will be pulled down toward the lower valuesCorrect

COverimproving a property increases its value proportionally to the improvement cost

DEconomic downturns reduce property values by a predictable percentage each cycle

Why A higher-value property placed among lower-value properties will be pulled down toward the lower values Is Correct

Answer B: A higher-value property placed among lower-value properties will be pulled down toward the lower values

The principle of regression holds that a superior property among inferior properties tends to decline toward the lower values. This is why appraisers caution against 'overimproving' relative to the neighborhood—the market will not support the cost.

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.

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.

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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