What economic principle forms the basis for the adjustment process in the market approach to value?

In the market approach to value, the principle of contribution is fundamental because it underlines how individual components or features of a property contribute to its overall value. This principle asserts that the value of a property can be determined by analyzing how the various traits and amenities it possesses contribute to the total market value.

For instance, when appraisers evaluate similar properties to determine value, they take into consideration how specific features—such as additional bedrooms, a modern kitchen, or a well-maintained landscape—impact buyer willingness to pay. By understanding the contribution of each feature, appraisers can make reasonable adjustments to the value of the property being assessed.

While other economic principles like substitution, supply and demand, and market segmentation play significant roles in real estate valuation as well, they do not specifically focus on how individual components or improvements impact the overall value of a property in the way that contribution does. Substitution is related to the idea that a buyer will not pay more for a property than what it would cost to purchase a comparable alternative, but it does not address the individual impacts of different features. Supply and demand dictate the market dynamics but do not hone in on property specifics, nor does market segmentation, which categorizes buyers or properties into groups. Therefore, understanding the