Florida Real Estate Broker ExaminationValuation and Market AnalysisEasy
A homeowner is considering adding a luxurious, custom-built swimming pool to their property. The pool is estimated to cost $80,000 to install. Similar homes in the neighborhood with pools typically sell for about $40,000 more than comparable homes without pools. Which appraisal principle best describes the likely impact of this improvement on the property's value?
- APrinciple of Anticipation
- BPrinciple of Contribution
- CPrinciple of Progression
- DPrinciple of Regression
Show answer & explanationAnswer & explanation
Correct answer: B. Principle of Contribution
The Principle of Contribution states that the value of any component of a property is measured by how much it adds to the net income or value of the property as a whole, not by its cost. In this case, the pool's contribution to value ($40,000) is less than its cost ($80,000).
Why the other options are wrong
- A. Anticipation relates to future benefits or detriments affecting present value.
- C. Progression relates to a lower-valued property increasing in value due to higher-valued neighbors.
- D. Regression relates to a higher-valued property decreasing in value due to lower-valued neighbors.
Principle of Contribution
The value of any component of a property is measured by how much it adds to the net income or value of the property as a whole, not by its cost.
- An improvement's cost does not necessarily equal its value contribution.
- Value is determined by the market's perception of the improvement.
- Often seen in situations where luxury improvements exceed market expectations.
Memory trick: Contribution: What does it 'add' to the whole?