Real Estate National Valuation Practice Test

The principle that the value of a component of a property is determined by its contribution to the overall property value is known as the Contribution principle. This principle suggests that each part of a property adds value to the whole, and thus, the value of a specific feature or improvement should be evaluated based on how much it enhances the overall worth of the property.

For instance, if a homeowner adds a swimming pool, the increase in property value should reflect the actual benefit and utility the pool adds to the property, rather than just the cost incurred to install it. In other words, if the pool increases the market value of the home by $10,000, then that is the contribution of the pool to the property’s overall value.

The other principles mentioned are relevant to real estate valuation but pertain to different concepts. The Substitution principle emphasizes that a property's value is influenced by what a buyer is willing to pay for a similar property. The Conformity principle asserts that properties achieve their maximum value when they are similar in style, quality, and condition to others in the surrounding area. Lastly, the Progression principle focuses on the increase in value that occurs when a less valuable property is located in a favorable area with higher-priced homes. Understanding the Contribution