Property ValuationIntermediateDelaware Exam

What is 'regression to the mean' in Delaware property values?

AProperty values tend to decline toward the neighborhood average over time

BProperties that are significantly above or below neighborhood norms in value tend to move toward the average over timeCorrect

CThe principle that overly improved properties decline in value fastest

DThe tendency for appraisers to estimate values near the purchase price

Why Properties that are significantly above or below neighborhood norms in value tend to move toward the average over time Is Correct

Answer B: Properties that are significantly above or below neighborhood norms in value tend to move toward the average over time

Regression to the mean (or regression toward average) suggests that properties significantly above or below neighborhood value norms tend to gradually drift toward the area average, reflecting the principle of regression.

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.

Capitalization Rate (Cap Rate)

A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.

Gross Rent Multiplier (GRM)

A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.

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