Property ValuationIntermediateCalifornia Exam

What is 'over-improvement' and how does it affect property value?

AAdding too many features to a property always maximizes its value, as typically applied in a comparative market analysis, under standard appraisal methodology, consistent with USPAP appraisal standards

BImproving a property beyond what the market supports for the neighborhood, resulting in the cost of improvements exceeding the value added (negative contribution)Correct

CA property that has been improved more than once, consistent with USPAP appraisal standards, under standard appraisal methodology

DA government finding that a property has been over-developed, per standard California valuation practice, under standard appraisal methodology, consistent with USPAP appraisal standards

Why Improving a property beyond what the market supports for the neighborhood, resulting in the cost of improvements exceeding the value added (negative contribution) Is Correct

Answer B: Improving a property beyond what the market supports for the neighborhood, resulting in the cost of improvements exceeding the value added (negative contribution)

Over-improvement (super-adequacy) occurs when improvements are added that exceed what the market in that area will support. For example, building a $100,000 addition in a neighborhood where similar homes sell for $300,000 may not add $100,000 in value — the principle of regression limits the added value.

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.

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.

Listing Agreement

A contract between a property owner and a real estate broker that authorizes the broker to market and sell the property.

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