A pool costs $70,000 to install but adds $25,000 to a home's sale price. What does the principle of contribution say its value is?
Correct Answer
D) $25,000, what it adds to the whole
Why this is correct: The principle of contribution states a component's value is measured by its net contribution to the total property value, not its cost. Here, the pool adds $25,000 to sale price, so its contributory value is $25,000. Why the other choices are wrong: "$70,000, its documented cost" is incorrect; cost does not equal value. "$47,500, a compromise figure" is wrong; contribution is not an average. "Nothing, since it failed to return cost" is false; it added value, just less than its cost. Exam tip: Contribution = value added. Cost is irrelevant to the buyer.
Why This Is the Correct Answer
Why this is correct: The principle of contribution states a component's value is measured by its net contribution to the total property value, not its cost. Here, the pool adds $25,000 to sale price, so its contributory value is $25,000. Why the other choices are wrong: "$70,000, its documented cost" is incorrect; cost does not equal value. "$47,500, a compromise figure" is wrong; contribution is not an average. "Nothing, since it failed to return cost" is false; it added value, just less than its cost. Exam tip: Contribution = value added. Cost is irrelevant to the buyer.
More real-estate-market Questions
A market-conditions adjustment should be applied to a comparable:
Building permit data is most useful to an appraiser as:
In the neighborhood life cycle, what characterizes the decline stage?
'Filtering' describes the process by which:
Under the principle of substitution, the maximum value of a property tends to be set by:
Why does an appraiser analyze the market area before analyzing the subject property?
In which phase of the real estate cycle do rising vacancies first meet a still-growing construction pipeline?
Which measure most directly signals demand strength in a housing market?
The principle of consistent use prohibits:
Frictional vacancy in a rental market refers to:
People Also Study
Valuation Principles & Procedures
25% of exam
Property Description & Analysis
20% of exam
Market Analysis & Highest/Best Use
15% of exam
Appraisal Math & Statistics
15% of exam
USPAP (Ethics & Standards)
15% of exam