California Real Estate Practice Exam

Which principle states that an improvement to a property is worth the value it adds, if any, to the whole property?

1. Principle of substitution

2. Principle of contribution

3. Principle of demand

4. Principle of highest and best use

The correct answer is: Principle of contribution

The principle of substitution states that a buyer will not pay more for a property than they would for a comparable property. While this may be a consideration in determining value, it is not the specific principle that addresses improvements to a property. The principle of demand relates to the relationship between the quantity of a good or service and its price in the market. This doesn't directly apply to property value. The principle of highest and best use is the concept that a property should be used in a way that will yield the greatest return. This is a valid principle, but it does not specifically address improvements to a property. The correct principle, principle of contribution, states that the value of an improvement to a property is the amount it adds to the overall value of the property. This principle recognizes that not all improvements will add the same value, and that the value of individual