New York Real Estate Salesperson ExaminationValuation and Market AnalysisMedium
A property owner installs a luxurious outdoor kitchen and a custom-built pool house, costing $150,000. However, in their neighborhood, most homes have modest patios and no pools. An appraiser estimates these improvements only add $50,000 to the property's market value. This scenario best illustrates which appraisal principle?
- APrinciple of Progression
- BPrinciple of Anticipation
- CPrinciple of Conformity
- DPrinciple of Contribution
Show answer & explanationAnswer & explanation
Correct answer: D. 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 whole property, not by its cost. In this case, the improvements cost $150,000 but only contributed $50,000 to the property's overall value.
Why the other options are wrong
- A. Progression relates to a lower-valued property gaining value from higher-valued neighbors.
- B. Anticipation deals with future benefits, not the current value added by an improvement.
- C. Conformity suggests properties should match the neighborhood; while relevant, contribution directly addresses the value added by specific changes.
Principle of Contribution
An appraisal principle stating that the value of any component of a property is measured by its effect on the overall property's value, not by its cost.
- Improvements are only worth what they add to the total value.
- Cost does not always equal value.
- Helps determine if an improvement is economically feasible.
Memory trick: Value's Principles: CA(P) CON(T) SUB.