SAEE Core Valuation Principles 2 — Questions and Answers
Question 1: Under the principle of substitution, what is the maximum value a buyer will pay for a property?
- The cost of acquiring an equally desirable substitute (Correct answer)
- The original construction cost
- The seller's asking price
- The assessed tax value
Correct answer: The cost of acquiring an equally desirable substitute
Substitution holds that a buyer pays no more than the cost of an equally desirable alternative.
Question 2: The principle of anticipation states that value is based on what?
- Expected future benefits of ownership (Correct answer)
- Past sale prices only
- The seller's emotional attachment
- Current replacement cost
Correct answer: Expected future benefits of ownership
Anticipation links value to the present worth of future benefits an owner expects to receive.
Question 3: Which principle explains why an oversized luxury home in a modest neighborhood may not recover its full cost?
- Regression (Correct answer)
- Progression
- Conformity
- Anticipation
Correct answer: Regression
Regression holds that a superior property's value is pulled down by surrounding lesser-valued properties.
Question 4: A modest home located among larger, more expensive homes tends to benefit from which principle?
- Progression (Correct answer)
- Regression
- Diminishing returns
- Substitution
Correct answer: Progression
Progression raises a lesser property's value due to its association with higher-valued neighbors.
Question 5: The principle of contribution measures value by what standard?
- The amount a component adds to overall property value (Correct answer)
- The cost to build the component
- The age of the improvement
- The replacement cost of the component
Correct answer: The amount a component adds to overall property value
Contribution evaluates an improvement by the value it adds, not its cost.
Question 6: The principle of conformity suggests maximum value is achieved when a property does what?
- Reasonably matches the surrounding area's use and style (Correct answer)
- Stands out dramatically from neighbors
- Has the lowest cost in the area
- Maximizes lot coverage
Correct answer: Reasonably matches the surrounding area's use and style
Conformity holds that properties reach peak value when they are similar in use and character to nearby properties.
Question 7: Which principle states that value is created and sustained when supply and demand are in balance with a property's use?
- Balance (Correct answer)
- Anticipation
- Substitution
- Competition
Correct answer: Balance
The principle of balance holds that value is maximized when factors of production and land use are in equilibrium.
SAEE Core Valuation Principles 2
Under the principle of substitution, what is the maximum value a buyer will pay for a property?