Basic principles of value Flashcards

Basic principles of value Flashcards Economic principles can affect the value of real estate ,the

most important are:

AnticipationChangeCompetitionConformityContributionHigh est and best useIncreasing and diminishing returnsPlottageRegression in progressionSubstitutionSupply and demand AnticipationValue is created by the expectation that certain events will occur. The income approach to value is based on the principle of anticipation

CompetitionThe interaction of supply and demand: excess profits tend

to attract competition.

Highest and best useThe most profitable single use of the property. Must be:

physically Possible, legally permitted, economically or financially feasible, and the most profitable or maximally productive.PlottageThe amount that the value of combined properties is increased by successful assemblage-The process of merging two separately owned lots under one owner.ConformityMaximum value is created when a property is in harmony with its surroundings. Maximum value is realized if the use of land conforms to existing neighborhood standards.Increasing and diminishing returnsImprovements to land and structures will eventually reach a point at which they no longer increase property value.Law of increasing returns-money spent on improvements produces an increase in income or valueLaw of diminishing returns-no matter how much money is spent on the property the properties value does not keep pace with the expenditures.Regression and progressionThe worth of the better quality property is adversely affected by the presence of a lesser quality property known as the principle of regression. Under the principle of progression the value of a modest home would be higher if it were located among larger, fancier properties.SubstitutionThe maximum value of a property tends to be set by how much it would cost to purchase an equally desirable and valuable substitute property. Principle of substitution is the foundation of the sales comparison approach to appraising.Supply and demandThe value of a product depends on the supply available in the marketplace. When the supply of similar properties increases, their value decreases and When the demand for such properties increases, their value increases. Principal

Depends on: number of properties available in the

marketplacePrices of other propertiesNumber of

purchasersPrice buyers are willing to pay

ChangeNo physical or economic condition remains constant: this is

the principle of change.ContributionThe value of any part of the property is measured by its affect on the value of the whole parcel.