Understanding the Principle of Regression in Real Estate Investment§
The Principle of Regression is a concept that real estate appraisers frequently lean on to describe how the value of high-end properties can be negatively influenced by the presence of lower-end properties nearby. More specifically, this principle is foundational for crafting zoning laws designed to segregate different types of property usage, ensuring that the influx of businesses doesn’t hamper residential tranquility.
Real-Life Application§
Imagine two homes with similar facilities and amenities situated on opposite sides of town. Both homes may have been bought at around the same price and constructed in the same era. However, over the years, zoning regulations might allow a bar and a diesel mechanic shop to open close to one of these homes. The house positioned nearer to the bar and mechanic shop could soon experience a decrease in its market value due to its now less appealing location.
The Impact on Zoning Laws and Property Prices§
This example underscores why the Principle of Regression is often cited by community members, particularly when less desirable businesses move into otherwise upscale neighborhoods. It goes beyond just numbers, directly influencing the lived experiences and investments of homeowners.
Stay informed and astute about how these subtle shifts in your neighborhood could affect your investments and decision-making in the real estate market.
Related Terms: property depreciation, real estate economics, property assessment
