Certified Pennsylvania Evaluator Practice Exam

What does the principle of Contribution state about construction costs?

1. The cost to build equals the increase in value

2. The cost to build is irrelevant to property values

3. The cost to build does not equal the increase in value

4. The cost to build is always higher than the market value

The correct answer is: The cost to build does not equal the increase in value

The principle of Contribution in the context of construction costs asserts that the value added to a property is not directly equivalent to the cost incurred to build or upgrade it. This principle highlights that not all improvements or construction expenditures will lead to an equivalent increase in market value. Therefore, the cost to build does not always correspond to the increase in value for the property. For example, if a homeowner spends a significant amount of money on luxury renovations or features that the local market does not demand, the resulting increase in property value may be minimal or nonexistent. This concept helps appraisers and evaluators understand that market forces, buyer preferences, and local economic conditions play crucial roles in determining value, overriding simple cost calculations. This distinction is essential for making accurate property assessments and informs decisions regarding investment in construction or improvements.