California Real Estate Practice Exam

Spending money to improve a property beyond the point where improvements add no additional value is an example of?

1. Principle of substitution

2. Principle of contribution

3. Principle of diminishing returns

4. Principle of competition

The correct answer is: Principle of diminishing returns

Spending money to improve a property beyond the point where improvements add no additional value is an example of the principle of diminishing returns. This means that at a certain point, spending more money on improvements will not result in a significant increase in the value of the property. Option A, the principle of substitution, refers to the idea that a buyer will not pay more for a property than what a comparable property is worth. Option B, the principle of contribution, states that the value of a particular improvement is based on how much it contributes to the value of the property as a whole. Option D, the principle of competition, means that the value of a property is affected by what other properties are available in the same market. None of these options fully describe the situation of spending money on improvements beyond the point of adding value, making option C the correct answer.