What does the principle of Contribution measure in real estate?

The principle of Contribution is a key concept in real estate appraisal that assesses how much a particular component or improvement adds to the overall value of a property. It specifically measures the present worth of improvements, which means it evaluates how much the additions or upgrades enhance the value of the property in comparison to the cost of those improvements.

This principle indicates that not all improvements will yield equal returns in value; instead, it suggests that the increase in value from an improvement is determined by its contribution relative to the existing property value and market demand. For instance, adding a swimming pool may not substantially increase the value of a property in an area where such amenities are uncommon.

Understanding the principle of Contribution allows appraisers to make informed judgments about valuation adjustments when assessing properties and their improvements, thus providing more accurate appraisals aligned with market realities.