Property ValuationIntermediateDelaware Exam

What is 'regression' in real estate valuation?

AThe decline in property value due to age and wear
BThe principle that an above-average property in a below-average neighborhood will be pulled down in value by inferior surrounding propertiesCorrect
CA statistical method used to analyze multiple comparable sales
DThe process of calculating depreciation using the straight-line method

Why The principle that an above-average property in a below-average neighborhood will be pulled down in value by inferior surrounding properties Is Correct

Answer B: The principle that an above-average property in a below-average neighborhood will be pulled down in value by inferior surrounding properties

The principle of regression states that a higher-value property will be adversely affected (pulled down in value) when surrounded by lower-value properties. This is why appraisers select comparables from similar neighborhoods and why buyers typically avoid overbuilding for a given location.

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

Depreciation

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

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