What does the Principal of Contribution state?

The Principle of Contribution is a key concept in real estate appraisal, asserting that the value of a property component is determined by how much that particular component adds to the overall value of the property. This principle emphasizes that not all improvements contribute equally to the value; some features may significantly enhance the property's worth, while others may contribute little or even detract from it.

For example, if a home has an upgraded kitchen, the investment in that kitchen may increase the overall value of the home more than its initial cost. Conversely, adding a swimming pool might not yield a proportional increase in value, depending on the local market and buyer preferences. Therefore, this principle helps appraisers assess the value of specific components based on their impact on the total property value, rather than just their inherent cost or aesthetic appeal.

Market factors, age of property components, and pricing dynamics have distinct roles in real estate evaluation, but they do not define the Principle of Contribution, making the explanation of this principle critical for understanding real estate valuation.