Real Estate Council of Alberta Fundamentals Practice Exam

What principle explains that less valuable properties can increase in value due to proximity to more valuable ones?

1. Principal of Surplus Productivity

2. Principal of Highest and Best Use

3. Principal of Progression

4. Principal of Increasing Return

The correct answer is: Principal of Progression

The principle of progression explains how less valuable properties can appreciate in value when they are located near higher-valued properties. This phenomenon occurs because the overall desirability of a neighborhood or area can be influenced by the presence of more expensive homes or properties. When a less valuable property is surrounded by more valuable properties, it can attract higher demand, as potential buyers see opportunities for investment, rehabilitation, or simply benefit from the enhanced social status associated with living in an affluent area. This principle is particularly relevant in real estate because it highlights how market dynamics function, with areas experiencing gentrification often leading to an increase in property values over time as they become part of more desirable locales. Understanding this principle is critical for investors and real estate professionals when assessing the potential appreciation of properties based on their location within a certain neighborhood or community context.