Humber/Ontario Real Estate Course 3 Exam Practice

Which principle of value best applies when a large, attractive home is sold for less due to smaller homes surrounding it?

1. Conformity

2. External Factors

3. Progression

4. Regression

The correct answer is: Regression

The principle of value that applies when a large, attractive home is sold for less due to the presence of smaller homes surrounding it is regression. This principle indicates that the value of a property can be negatively impacted by the lower value of neighboring properties. In this case, even though the large home may be desirable and well-built, its market value could be diminished because it is situated in a neighborhood with smaller, less expensive homes, which can lead to an overall decrease in perceived value. The regression principle highlights how external influences, such as the characteristics of surrounding properties, can affect a property's market price. This situation occurs frequently in real estate, where the quality of nearby homes can drag down the pricing for a more upscale property, illustrating the dynamic nature of real estate value based on location and neighborhood characteristics.