Owner converted master bedroom into 'granny flat' costing $50,000 but adding $30,000 value. Later, kitchen remodel cost $15,000 but added $20,000 value. Which statement is correct?
Correct Answer
D) None above statements are correct
Answer D is correct because none of the other statements accurately describe the scenarios presented. The granny flat conversion illustrates decreasing returns (cost $50,000, added only $30,000 in value — a net loss of $20,000), while the kitchen remodel illustrates increasing returns (cost $15,000 but added $20,000 in value — a net gain of $5,000). Answer A incorrectly labels both as decreasing returns, Answer B incorrectly applies the concept of progression (a neighborhood effect, not an investment return concept), and Answer C incorrectly applies regression (also a neighborhood concept), making D the only accurate choice.
Why This Is the Correct Answer
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Related Topics & Key Terms
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More Property Valuation Financial Analysis Questions
Return of an investor’s investment is provided for through:
A licensed appraiser in California is appraising a home in a subdivision where half the homes are within a Mello-Roos Community Facilities District and half are not. The subject property is within the Mello-Roos district and pays $3,200 annually in special taxes. When selecting comparables, which approach is MOST appropriate under California appraisal standards?
A California real estate agent explains to an investor that the Gross Rent Multiplier (GRM) is a simplified method of property valuation. Compared to the capitalization rate method, what is the main limitation of the GRM approach in the California market?
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The appraisal approach that estimates value by comparing a property to similar recently sold properties is the:
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