What does regression mean in real estate?

The principle of regression is a term used by real estate appraisers stating that the value of high-end real estate may be diminished by having lower-end properties in the same vicinity. This principle is used frequently in writing zoning laws, which strive to keep business and residential areas separate.

What is an example of regression in real estate?

The principle of regression states that the value of a more expensive property will decrease when less expensive properties come into the area. Thus, if your home is worth $500,00 and it is surrounded by $100,000 homes, the value of your property will go down.

What is regression and progression in real estate?

Principle of progression is the idea that the value of a house increases when more valuable houses are built in the area. This contrasts with principle of regression, which is based on the concept that larger, more expensive houses lose value when they are near smaller, less valuable homes.

What is regression analysis in appraisal?

Regression analysis is one tool or method that real estate appraisers use in or to determine value adjustments. When appraisers use regression analysis they will compare the sale price (dependent variable) to many independent variables. Appraisers can use statistical data and analyze it.

What is the basic principle of regression?

Applications of Regression Analysis

There are three major uses of regression analysis attributing causality [cause and effect relationship], forecasting and prediction. These are explained with three examples.

Building the Regression Model for Real Estate Appraising

What is conformity in real estate?

The principle of conformity states that maximum value is realized when a reasonable degree of architectural homogeneity exists and land uses are compatible. This principle implies reasonable similarity, not monotonous uniformity, tends to create and maintain value.

What is anticipation in real estate?

The principle of anticipation is a method used by an appraiser where the appraiser uses the income approach to determine the value of a property. The appraiser will estimate the present worth of future benefits for the property.

What is obsolescence in real estate?

Real estate can exhibit functional obsolescence if its design features are outdated, not useful, or not aligned with market tastes and standards, such as when an old house is located within a neighborhood of new homes.

What is substitution in appraisal?

Substitution – A principle of appraisal holding that the maximum value of a property is set by how much it would cost to obtain another property that is equally desirable, assuming that there would not be a long delay or significant incidental expenses involved in obtaining the substitute.

What is the cost approach to value?

The cost approach is a real estate valuation method that estimates the price a buyer should pay for a piece of property is equal the cost to build an equivalent building. In the cost approach, the property's value is equal to the cost of land, plus total costs of construction, less depreciation.

What is the difference between progression and regression?

What is exercise regression and progression? An exercise regression is simply an approach to decrease the demand of an exercise or movement. Conversely, a progression does the opposite by increasing the demand incrementally through minor changes.

What is highest and best use in real estate?

A property must be appraised in terms of its highest and best use. The definition of highest and best use is as follows: The reasonable, probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value.

What is an example of the principle of regression?

This principle is often quoted by angry citizens when an undesirable business moves into a nicer part of town. An example is if two homes with basically similar amenities were located across town from one another. The homes may have been purchased for roughly the same amount and be approximately the same age.

What is the effective age on an appraisal?

Effective Age is a term used by appraisers to state the age of a property based on its current condition, rather than its actual age. For example, a well maintained home with an actual age of 80 years could have an effective age of 10 years due to excellent maintenance and updates.

How do you value real estate?

There are three approaches to value real estate: (a) comparable sales approach, a relative valuation method, (b) income approach, a time value of money based method, which includes the (i) direct capitalization method and (ii) discounted cash flow method, and (c) cost approach, which values real estate at its ...

What is appraisal progression?

Principle of progression is a principle of real estate and the appraisal industry that states that the value of a lower-end property can be increased or positively affected by other higher-end property in the same neighborhood or locality.

What are the four factors that influence value?

The current and future importance consumers place on the four factors of value (Desire, Utility, Scarcity, and Effective Purchasing Power) represents Demand and Supply of the product or service.

What is reconciliation in real estate?

Reconciliation — The process by which the appraiser evaluates, chooses, and selects from among alternative conclusions to reach a final value estimate. During the appraisal process, generally more than one approach is applied, and each approach typically results in a different indication of value.

What does Utility mean in real estate?

Utilities are additional essential services needed for a property to be fully functional and are usually paid on a monthly basis. They include electricity, air conditioning, natural gas, water, sewage, trash, and sometimes internet and cable.

What are the 3 types of obsolescence?

“Obsolescence” is the term used to refer to something that is either out of date, or no longer in line with market requirements. As it relates to a commercial real estate investment, there are three types of obsolescence: functional, economic, and physical.

What are the four types of obsolescence?

What is a Superadequacy in real estate?

Per The Dictionary of Real Estate Appraisal, 6th Ed., superadequacy is defined as “an excess in the capacity or quality of a structure or structural component; determined by market standards.” Superadequacy is a type of functional obsolescence, as the structure or one of its components is at a greater capacity or ...

What is the last stage in the appraisal process?

The final step in the appraisal process is the discussion and/or implementation of any next steps: a reward of some sort—a raise, promotion or coveted development opportunity—or corrective action—a performance plan or termination.

Which appraisal principle is considered the opposite of regression?

The principle of regression in real estate is the opposite of the principle of progression.

What is the first principle of appraising real property?

The principle of substitution is the most basic principle of appraisal as it is used in each of the three approaches to value. The principle of anticipation: The principle of anticipation concerns how a property will benefit the owner over time and into the future.