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Valuation & Market Analysis term

Principle of Contribution

The idea that an improvement's value is measured by how much it adds to the overall property value, not its cost.

Why Principle of Contribution matters on the exam

This term belongs to Valuation & Market Analysis. The questions below are real items from Freehold's bank that use it - each one cites its source.

Exam questions using Principle of Contribution

Every Freehold question shows why the right answer is right — and cites its source.

A buyer refuses to pay more for a home than the cost of a similar home nearby. This illustrates which principle of value?

  1. Principle of anticipation
  2. Principle of conformity
  3. Principle of substitution
  4. Principle of contribution
Show answer & explanation

Principle of substitution — The principle of substitution holds that a buyer will not pay more for a property than the cost of acquiring an equally desirable substitute. It underlies the sales comparison approach to value.

Source: PSI National Real Estate Exam Content Outline §3 Valuation & Market Analysis

A homeowner spends $35,000 installing an in-ground swimming pool, but an appraisal shows the pool adds only $12,000 to the home's market value. This illustrates the principle of:

  1. Anticipation
  2. Substitution
  3. Contribution
  4. Progression
Show answer & explanation

Contribution — The principle of contribution states that the value of an improvement is measured by how much it adds to overall property value, not by what it cost to install.

Source: PSI National Real Estate Exam Content Outline §3 Valuation & Market Analysis

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