SAEE SAEE - Core Valuation Principles Questions and Answers 3 — Questions and Answers
Question 1: Which valuation principle states that the value of a property is influenced by the expectation of future benefits?
- Principle of Anticipation (Correct answer)
- Principle of Substitution
- Principle of Contribution
- Principle of Balance
Correct answer: Principle of Anticipation
The principle of anticipation holds that value is created by the expectation of future benefits such as income or amenities.
Question 2: An appraiser finds that adding a fourth bedroom to a three-bedroom home increases its value by only $5,000, while each of the first three bedrooms added far more. This illustrates the principle of:
- Regression
- Diminishing Marginal Returns (Correct answer)
- Progression
- Substitution
Correct answer: Diminishing Marginal Returns
Diminishing marginal returns means each additional unit of improvement contributes less to overall value than the previous unit.
Question 3: The principle of conformity suggests that maximum value is achieved when:
- A property is uniquely designed to stand out in the market
- Land uses and property types are compatible within the neighborhood (Correct answer)
- A property is over-improved relative to surrounding homes
- The highest and best use changes frequently
Correct answer: Land uses and property types are compatible within the neighborhood
Conformity states that properties achieve maximum value when they are reasonably similar to and compatible with surrounding properties.
Question 4: Under the principle of contribution, the value of a swimming pool in a property is best measured by:
- Its actual construction cost
- Its replacement cost new less depreciation
- The amount it adds to the market value of the property (Correct answer)
- The income it generates over its useful life
Correct answer: The amount it adds to the market value of the property
Contribution measures value by the amount a component adds to total property value, not by its cost to install.
Question 5: A vacant lot sits between two fully developed commercial parcels. The lot's value increases significantly due to its potential for assembly with the adjacent parcels. This is an example of:
- Plottage value (Correct answer)
- Regression
- Excess land value
- Interim use value
Correct answer: Plottage value
Plottage refers to the increment of value created by combining two or more parcels into a single, larger, more valuable site.
Question 6: Which principle explains why a well-maintained home in a declining neighborhood may sell for less than its cost to build?
- Principle of Progression
- Principle of Regression (Correct answer)
- Principle of Anticipation
- Principle of Contribution
Correct answer: Principle of Regression
Regression states that the value of a superior property is pulled down by the presence of inferior surrounding properties.
Question 7: The economic principle that links supply and demand to value is best described as:
- When supply exceeds demand, prices tend to rise
- When demand exceeds supply, prices tend to rise (Correct answer)
- Supply and demand have no effect on real property value
- Demand is always constant in real estate markets
Correct answer: When demand exceeds supply, prices tend to rise
Basic market economics dictate that when demand exceeds supply, competition among buyers drives prices upward.
SAEE SAEE - Core Valuation Principles Questions and Answers 3
Which valuation principle states that the value of a property is influenced by the expectation of future benefits?