According to the principle of contribution, how is a part of a property valued?

The principle of contribution is a key concept in real estate appraisal that helps determine the value of a property or its components based on the benefit they provide in terms of overall value or income generation. When evaluating a part of a property, its value is assessed in relation to how much it contributes to the overall net income or value of the entire property.

This means that if a specific feature or improvement, such as an additional bedroom, a swimming pool, or upgraded landscaping, enhances the overall utility and attracts higher rental income or sales price, it will have a quantifiable value based on its contribution to the total income that the property generates. Therefore, the correct understanding is that the value of a part of the property is driven by its performance in augmenting the property’s financial returns.

In contrast, looking solely at historical cost does not reflect current market dynamics or the actual contribution to income. Additionally, evaluating value by merely comparing it to neighboring properties neglects the unique benefits that the feature might provide. Finally, ignoring the overall property performance disregards the way various components work together to enhance or detract from the total property value. By focusing on the contribution to net income, a more accurate assessment of a property's components can be achieved.