Certified Residential Appraiser Practice Exam

What principle states that a lower-priced property will have a higher value in a high-priced neighborhood?

1. Principle of Regressing Value

2. Principle of Progression

3. Principle of Highest and Best Use

4. Principle of Market Demand

The correct answer is: Principle of Progression

The Principle of Progression illustrates the concept that a lower-priced property can achieve a higher value when situated in a neighborhood that has more expensive properties. This phenomenon occurs because the value of the lower-priced property is influenced positively by the higher-valued homes around it. Buyers often consider the overall neighborhood desirability and the opportunity for appreciation when making purchasing decisions. In a high-priced neighborhood, even properties that are not as upgraded or spacious can see increased value simply due to their location. The demand for homes in such areas typically elevates the status and perceived desirability of all properties, regardless of their individual market worth. Thus, the presence of higher-priced homes leads to increased interest and, consequently, capital appreciation for lower-priced homes. The other principles focus on different aspects of property valuation: regressing value refers to how higher-value properties may lose value when too close to lower-value properties, highest and best use pertains to the most profitable and optimal use of a property, and market demand relates to the overall demand for properties rather than the specific effects of location on individual property values.