Chapter 4
Appraisal Principles

Economic principles

*   Increasing and decreasing returns--adding another bath to a 6 bedroom, one bath home is probably and increasing return to scale. Adding another bath to a three bedroom, three bath home is probably a decreasing return to scale.

*   Opportunity cost (principal of substitution)--Will pay no more than…

Economic principles (cont.)

*   Marginal productivity (contribution)--value is the price of the last unit produced

*   Balance

*   Internal balance--components must be in balance--The six bedroom one bath home will sell for less than a six bedroom two bath home less the cost of the additional bathroom.

*   External balance--The market must be in equilibrium for the value of an additional property to be equivalent to the values of preexisting properties.

Economic principles (cont.)

*   Conformity--The property must generally conform to the norm demanded by the market in order for the value to be based upon that norm.

*   External economies and diseconomies (externalities)

Highest and best use

*   Highest and Best Use of a Property as Vacant

*   Highest and Best Use of a Property as Improved--Itemizing curable depreciation.

*   Purpose of Highest and Best Use Analysis

*   Sample Highest and Best Use Statements

*   Residential

*   Commercial