Principle of Progression
Definition and meaning of Principle of Progression in real estate.
Principle of progression is an appraisal theory stating that the value of a lower-end or lesser-quality property is boosted when it is located near higher-value, superior properties. This concept explains how a modest home can benefit from being the least expensive house in a prestigious neighborhood.
In more detail
Real estate buyers and investors often leverage this principle by purchasing run-down homes in upscale areas. Because the surrounding homes are highly valuable, they pull up the market perception and price potential of the lower-value home. This makes such properties excellent candidates for renovation, as the neighborhood can support a higher eventual sales price.
However, the owner of the modest home must still ensure they do not over-improve the property beyond what local buyers are willing to pay.
Key facts
| Category | Real Estate Investing |
|---|---|
| Primary benefit | Boosts the value of lower-end properties |
| Key driver | Proximity to higher-value, superior homes |
| Investment strategy | Buying the worst house in the best neighborhood |
An investor purchases a small, outdated house on a street lined with newly renovated, high-value homes. Due to the principle of progression, the investor's house is worth more than an identical house located in a run-down neighborhood.
Frequently asked questions
How does the principle of progression help home buyers?
It allows buyers to purchase an affordable home in a desirable neighborhood, knowing that the surrounding high-end homes will help protect and grow their property value.
Is progression guaranteed to raise a home's value?
Proximity to nicer homes provides a positive influence, but market conditions, home maintenance, and overall demand still play major roles in the final valuation.