The appraisal of real estate involves fifteen principles that are fundamental to understanding value. Five of these I would like to share with you and invite your comments or questions. You will find in my last blog that I also posted five principles, for a total of, ten, todate.
The Principle of Progression. This principle is an extension of the principle of conformity and states that in the case of properties that are dissimilar, the value of the poorer property will be affected positively by the presence of the property of higher value.
The Principle of Regression. This principle is also an extension of the principle of conformity and states that in the case of dissimilar properties, the value of the better property will be affected adversely by the presence of the property of lesser value.
The Principle of Consistent Use. This principle states that when improved land is in transition to another highest and best use, it cannot be appraised with one use allocated to the land and another to the building or other improvements. In dealing with compensation for expropriated property, this theory is referred to as double recovery.
The Principle of Contribution. This principle is a valuation principle stating that the value of any component of a property is measured by how much it adds to the net income (market value) by reason of its presence, or detracts from the net income (market value), by reason of its absence. The value of any factor in production depends upon its contribution to net income or value and not upon its cost. Sometimes known as the principle of marginal productivity.
The Principle of External Factors. This principle involves a broad array of situations that can impact value and include circumstances/situations near or more distant from the property. This may take the form of services near the property, or economic conditions within the immediate area, region or country. Government regulations and requirements can also affect the market.