Humber/Ontario Real Estate Course 4 Exam Practice

What principle of value best applies if a large and attractive home in a neighborhood of smaller homes sells below its initially listed price?

1. Progression

2. Conformity

3. External Factors

4. Regression

5. Homogeneity

6. Functional Obsolescence

The correct answer is: Regression

The principle of regression is the most relevant in this scenario. This principle suggests that the value of a more valuable property can be adversely affected by the presence of less valuable properties in its vicinity. In this case, the large and attractive home is situated in a neighborhood characterized by smaller homes, which can lead potential buyers to perceive the property as being less valuable than if it were located in an area with similar or larger homes. Consequently, this perception can drive its selling price down below the initially listed price. Other principles, while relevant in various contexts, do not address the specific dynamics at play here. For instance, progression involves the increase in value of a smaller home located in a neighborhood of larger, more valuable homes, which does not apply here. Conformity relates to properties achieving maximum value by conforming to neighborhood characteristics, while external factors pertain to outside influences affecting property value. Homogeneity, in contrast, refers to properties being similar to each other in a given area. Functional obsolescence deals with a property becoming less desirable due to features that are no longer considered desirable or useful. In this scenario, the principle of regression specifically captures the effect of neighborhood influences on value.