Property Valuation
An appraiser notes that a neighboring property's swimming pool added $15,000 to its sale price. However, the pool cost $35,000 to build. This illustrates the principle of:
ASubstitution
BConformity
CContribution✓ Correct
DAnticipation
Explanation
The principle of contribution holds that the value of an improvement is measured by the amount it adds to the whole property's value, not by its cost. The pool's contribution ($15,000) is less than its cost ($35,000).
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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.
DepreciationA reduction in the value of an improvement (building) over time due to physical deterioration, functional obsolescence, or external factors.
Short SaleA sale of real property where the sale proceeds are less than the outstanding mortgage balance, requiring lender approval.
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.
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