Which appraisal principle affects the value of a higher quality property when a lesser quality property is present?

The principle that affects the value of a higher quality property when a lesser quality property is present is known as regression. This concept is rooted in the idea that the presence of lower-quality or less desirable properties in a neighborhood can have a negative impact on the value of a higher-quality property. Essentially, the higher-quality property may be dragged down in value by the overall market characteristics and conditions of the surrounding area.

This phenomenon occurs because appraisers consider the neighborhood’s overall quality when determining property values. If higher-quality homes are surrounded by homes of lesser quality, the perceived value of the more desirable homes may decrease due to the influence of those lesser-quality properties, leading to a regression in value.

Understanding this principle is crucial for appraisers, real estate professionals, and investors, as it highlights the importance of neighborhood characteristics in property valuation. It emphasizes that properties do not exist in financial isolation; rather, they are influenced by the surrounding market dynamics.