Property Valuation
The principle of regression in appraisal states:
AA home's value increases when surrounded by higher-priced homes
BA higher-value property is pulled down in value when surrounded by lower-value properties✓ Correct
CProperty values always decline over time
DLand values decrease as buildings increase in value
Explanation
The principle of regression holds that a superior (higher-value) property will be negatively affected in value when located among inferior (lower-value) properties. The opposite principle, progression, holds that an inferior property benefits from being surrounded by superior properties.
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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.
DepreciationA reduction in the value of an improvement (building) over time due to physical deterioration, functional obsolescence, or external factors.
Capitalization Rate (Cap Rate)A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
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