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Unit 3:

Economic Principles of Value

QuestionAnswer
Value the monetary relationship between properties and those who buy, sell, or use those properties
DUST Demand, Utility, Scarcity, Transferability
Political factors and government controls zoning, building codes, health codes, other restrictions or conditions affecting land use. Other governmental factors that affect values are local regulations on business and industry, local taxation, assessments, and endangered species designations.
PEPS Physical factors, Economic factors, Political factors, Social factors
principle of substitution a property cannot exceed the value of equivalent properties in a given market area. All property whether personal or real property is subject to value by comparison.
principle of anticipation expectations of buyers of future benefits of a property. Appraisers need to keep informed of community affairs and local economic trends in order to analyze the effect of anticipation in the subject property’s market.
principle of contribution principle speaks directly to the overall value of the property and breaks out the contributory value of the component.
increasing return the cost of a contribution is less than or equal to the amount the market will pay for that contribution.
decreasing return cost of a contribution is more than the amount the market will pay for that contribution.
principle of balance also known as the theory of surplus productivity.
surplus productivity The net income to the land that remains after the costs of the other agents of production have been paid - Surplus productivity is a way to measure the value of improved land.
agents of production labor, management (entrepreneurship), capital, and land. All four agents are essential to the success of any project—residential, agricultural, industrial, or commercial.
Labor includes wages (except management) and all operating expenses.
Management entrepreneurial profit and all charges for coordinating the enterprise.
Capital covers the costs of land and improvements. It includes amortization of loans to pay for capital expenditures.
land residual that remains after satisfying the other three agents in production goes to the land
principle of change states that supply and demand fluctuate up or down in response to the economic, social, or other influences affecting value.
Gentrification form of revitalization and occurs when run-down properties in a lower income area are renovated or rehabilitated. This is also known as a neighborhood in transition.
Neighborhood Life Cycle life cycle, growth, stability, decline , revitalization
principle of conformity that property value is created and maintained when the characteristics of a property conform to the demand of its market.
principle of progression the worth of a lesser-valued residence tends to be enhanced by association with higher-valued residences in the same area.
over-improvement or superadequacy. homes that are less than half its size and of inferior construction.
diminished value of excess This causes a diminished value per unit of the lot due to utility.
Opportunity cost profit lost on an investment that an investor cannot make because the money is already invested in something else.
leading indicator Housing starts (along with building permits)
Absorption analysis study of the number of residential or nonresidential properties that can be sold or leased over a given period in a defined location.
economic base measured by the number of sources, and the more sources the stronger the base.
Created by: Kids3