Texas Real Estate State Practice Exam

Which principle states that a property's value is affected by the presence of favorable or unfavorable elements in the vicinity?

1. Principle of Anticipation

2. Principle of Change

3. Principle of Contribution

4. Principle of Regression

The correct answer is: Principle of Regression

The principle that accurately describes how a property's value is influenced by the presence of either favorable or unfavorable external elements is the Principle of Regression. This principle states that a property's value can decline if it is located near less desirable properties, neighborhoods, or amenities. For example, a well-maintained home could lose value if it is situated next to a dilapidated structure or an undesirable area. Conversely, the presence of higher-quality properties in the vicinity can enhance a property's value, illustrating the impact of surrounding factors on real estate. In contrast, the Principle of Anticipation pertains to how the expectations of future benefits (or detriments) can influence current property values. The Principle of Change indicates that real estate is always changing due to various factors, like economic shifts, demographic trends, or changes in property use. The Principle of Contribution focuses on how much value a specific improvement or feature adds to a property relative to its cost, rather than the impact of outside elements on overall property value. This distinction underscores the uniqueness of the Principle of Regression in illustrating the relationship between a property's value and its surrounding environment.