Real Estate Council of Alberta Fundamentals Practice Exam

Why is a property lose value according to the Principal of Regression?

1. Due to the presence of more valuable properties nearby

2. Because it is similar to other lower value properties

3. Due to high maintenance costs associated with it

4. Because of a decrease in local demand for housing

The correct answer is: Because it is similar to other lower value properties

The correct choice regarding the property losing value under the Principle of Regression is that it is primarily due to being similar to other lower value properties in the area. According to this principle, the value of a property tends to be negatively influenced by the characteristics of surrounding properties. When a property is located near less desirable or lower-valued properties, it may regress in value because potential buyers often compare it to its neighbors. As such, if a property finds itself in a neighborhood characterized by lower-valued homes, its overall marketability and appeal may diminish, leading to a decrease in its value. This principle emphasizes the impact of the surrounding environment on property values, highlighting how properties do not exist in isolation but are instead influenced by the characteristics of neighboring properties. When buyers evaluate properties, they consider not only the subject property but also the properties around it, which can lead to a perceived decrease in value if those surrounding properties are less valuable. The other options, while they may impact property value, do not illustrate the specific effect described by the Principle of Regression. For instance, the presence of more valuable properties nearby might indicate potential for appreciation rather than regression. High maintenance costs refer to a property-specific issue and are not related to the influence of neighboring properties. A decrease