Which statement describes the regression principle?

Which statement describes the regression principle?

• A. Higher-priced properties tend to be worth less in lower-priced neighborhoods
• B. Higher-priced properties tend to be worth more in lower-priced neighborhoods
• C. Higher-priced properties tend to be worth less in higher-priced neighborhoods
• D. Values are determined by neighborhood only

Answer: (A)

Regression in real estate appraisal is the idea that a property's value tends to move toward the mean of nearby properties. When a very high-priced property sits in a lower-valued neighborhood, its value is pulled down toward the neighborhood’s average, so it ends up worth less than its standalone high price. That is exactly what the statement describes: higher-priced properties tend to be worth less in lower-priced neighborhoods. This concept helps explain why pricing isn’t driven by the property in isolation but by how it compares to surrounding homes. The principle also implies the flip side—low-priced properties in higher-valued neighborhoods tend to be worth more than their isolated price. It’s not correct to say values are determined by neighborhood only, since property-specific factors like size, condition, and features also matter, nor to claim that high-priced properties in higher-priced neighborhoods are necessarily worth less.

Regression in real estate appraisal is the idea that a property's value tends to move toward the mean of nearby properties. When a very high-priced property sits in a lower-valued neighborhood, its value is pulled down toward the neighborhood’s average, so it ends up worth less than its standalone high price. That is exactly what the statement describes: higher-priced properties tend to be worth less in lower-priced neighborhoods. This concept helps explain why pricing isn’t driven by the property in isolation but by how it compares to surrounding homes.

The principle also implies the flip side—low-priced properties in higher-valued neighborhoods tend to be worth more than their isolated price. It’s not correct to say values are determined by neighborhood only, since property-specific factors like size, condition, and features also matter, nor to claim that high-priced properties in higher-priced neighborhoods are necessarily worth less.