Real Estate Appraisal Practice Exam

What economic principle explains the increase in value of a lower-quality property due to the presence of a higher-quality adjacent property?

1. Progression

2. Regression

3. Supply and demand

4. Augmentation

The correct answer is: Progression

The principle that explains the increase in value of a lower-quality property due to the presence of a higher-quality adjacent property is progression. This economic principle indicates that the value of a property can be positively affected by the proximity to more desirable properties. When a lower-quality property is located near a higher-quality property, potential buyers may perceive the overall area as more attractive, which can lead to an increase in demand for the lower-quality property. This increased demand can drive up the value of the lower-quality property simply because of its location and the influence of the higher-quality adjacent property. Understanding progression helps appraisers recognize how neighborhood dynamics can impact property values and enables them to make informed assessments about the worth of properties within varying contexts. The other principles, such as regression, often deal with how higher-quality properties may decline in value when surrounded by lower-quality properties, which provides a contrasting concept to progression. Similarly, supply and demand is a broader economic principle that addresses market dynamics but does not specifically focus on the impact of neighboring properties.