The principle of progression and regression are two of the main appraisal principles appraisers use to determine fair market value for a property. This article discusses progression, progression examples, regression, regression examples, real estate appraisal, and what you need to know come exam day.
What is the Principle of Progression in Real Estate?
The principle of progression states that the value of a property increases when more valuable properties are built in the area.
The idea is that if your property is worth $250,000 and is surrounded by $400,000 properties, its value will likely go up. Meaning in plain terms, the value of a house increases when more valuable houses are built in the surrounding neighborhood.
The principle of progression is one of the many appraisal principles appraisers use to determine fair market value for a property. Using the progression principle, comparable properties, real estate market trends, and more, appraisers can accurately determine a fair price for properties.
Principle of Progression Example
Let’s say your grandparents built a house in the ’70s, and ever since, slowly and steadily, other houses in the neighborhood were being built. New houses were built every so often for years until the community was filled with large, updated homes, except for your grandparents. While many people see this as a problem, a wise investor would look at this as an opportunity.
If the surrounding neighborhood has properties worth more than you, your property value will go up. What’s even more incredible is with some improvements, sometimes major or minor your property can reach that value. That’s the principle of progression.
Principle of Progression and Property Values
Progression is a real estate principle that directly affects property values. Most people are aware of the appraisal principle but not by name. Still, as a real estate agent or professional, you need to know how it works, what it’s called, and of course, be aware of it come exam time.
What is the opposite of progression in real estate? Well, it’s something called regression, and there’s a principle for that.
What is the Principle of Regression?
The principle of regression states that the value of a property decreases when less valuable properties are built in the area.
Like its counterpart the principle of regression, if your property is worth $400,000 and is surrounded by $250,000 properties, its value will likely go down. Meaning in plain terms, the value of a house decreases when less valuable houses are built in the surrounding neighborhood.
Just like the principle of progression is the principle of regression one of the many appraisal principles appraisers use to determine fair market value for a property.
Principle of Regression Example
The principle of regression comes up all-time in zoning. Frequently zoning laws are designed to keep businesses and residential areas separate; when this does not occur, like-lets say, an undesirable business moves into a nicer part of town, people can get upset.
Or maybe you own a modest house and your neighboring properties are not so modest. Maybe a group of wild college students move near you and the whole neighborhood turns into party central. This obviously could put your property at risk for regression.
What to Know for the Real Estate Exam
When exam day comes, you need to be familiar with what we talked about today. Remember, the principle of progression and regression are two of the main appraisal principles appraisers use to determine fair market value for a property. Understand how both progression and regression exist, and you’ll be good to go come exam day.