An owner added an extension to their home for $35,000, but an appraiser valued it at $25,000. What principle does this illustrate?

The concept illustrated in this scenario is the principle of contribution. This principle states that the value of an improvement made to a property is determined by the extent to which that improvement adds to the overall value of the property, rather than simply by the cost of the improvement itself. In this case, the owner invested $35,000 into extending their home, but the appraiser assessed that the value added by this extension is only $25,000.

This disparity highlights that not every dollar spent on improvements translates directly into an equivalent increase in property value. The appraiser’s evaluation reflects the market’s perception of the improvement’s worth, which may be influenced by various factors such as market demand, property location, and the overall condition of the home. Hence, the principle of contribution indicates that the effective addition to the property’s value is less than the initial expense, demonstrating how certain enhancements may not yield a return on investment proportional to their cost.