Property Valuation
What is 'regression to the mean' in real estate valuation and how does it apply to Idaho properties?
AA statistical method to average comparable sale prices
BThe tendency of property values to move toward neighborhood averages — an overimproved property loses value relative to cost, and an underimproved property is pulled upward✓ Correct
CA method of predicting future price trends
DA mathematical formula for calculating depreciation
Explanation
Regression to the mean is related to the principle of progression and regression. An overimproved property (a $600,000 home in a $350,000 neighborhood) tends to be dragged down in value toward neighborhood norms.
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Key Terms to Know
Depreciation
A reduction in the value of an improvement (building) over time due to physical deterioration, functional obsolescence, or external factors.
Comparable Sales (Comps)Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
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
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