Page 376 - Principals of Real Estate

370 California Real Estate Principles

Principle of Progression

The principle of progression states that the value of an inferior property will
be worth more because of the presence of greater-valued properties nearby.

Principle of Regression

The opposite of progression, the principle of regression states that the value
of a superior property will be worth less because of the presence of lower-valued
properties nearby.

Principle of Balance

The principle of balance states that real estate value is created and sustained
when contrasting, opposing, or interacting elements are in a state of equilibrium.
A careful mix of varying land use creates value. Over-improvement or under-
improvement will cause imbalance.

Principle of Anticipation

The principle of anticipation expresses that value is created by the expectation
of future benefits. An appraiser estimates the present worth of future benefits
when he or she assigns a value based on anticipated returns.

Principle of Contribution

The principle of contribution is the worth of an improvement as well as what
it adds to the entire property’s market value, regardless of the actual cost of
the improvement. An improvement is a valuable addition made to property
to enhance value or extend useful remaining life.

A remodeled attic may not contribute its entire cost to the value of the
property; but a new family room will increase the value of the house by more
than the cost to build. This principle must be kept in mind by homeowners
who want to change the character of their house in such a way that it no longer
fits in the neighborhood. The cost of the improvement may not add to the
value if the house is overbuilt for the area.

THE APPRAISAL PROCESS

At the end of an appraisal, an appraiser must be prepared to answer the
following two questions:

“What is the highest and best use of the property?”
“What is this use worth?”
Professional appraisers have developed an orderly systematic method—known
as the appraisal process—to arrive at an estimate of value.