Affiliate Broker Tennessee (TN PSI) National Practice Exam `

A rundown home affecting property values demonstrates which economic principle?

1. Regression.

2. Progression.

3. Conformity.

4. Supply and demand.

The correct answer is: Regression.

The concept of regression refers to the principle that properties of lesser quality or value can negatively impact the values of nearby properties. In this case, a rundown home influencing the value of surrounding properties exemplifies regression. Essentially, the presence of a dilapidated property detracts from the neighborhood's overall appeal and desirability, which could pull down the market values of homes in the vicinity. Regression occurs because buyers are less willing to pay a premium for a home in a neighborhood with substandard maintenance or poor conditions, as it raises concerns about the overall environment and future resale potential. This economic principle underscores the importance of the condition of properties in relation to their surroundings and indicates that the value of a property does not exist in isolation; rather, it is influenced by its neighbors and the overall area. The other options focus on different economic principles such as progression, which suggests that properties in a better context can increase their values, conformity, which relates to how properties in an area maintain similar characteristics to support value, and supply and demand, which deals with market dynamics rather than the specific impact of a poor-quality property on its surroundings. These concepts, while relevant in real estate, do not specifically illustrate the effects of a rundown property on property values as clearly as regression