The four elements a property must have
Before the market will pay anything, four things must be present, remembered as DUST: demand (coupled with purchasing power), utility, scarcity, and transferability. Demand without money behind it is not demand, which is why purchasing power is bolted onto the first element.
Two lists serve as distractors. Location, condition, age, and style are property characteristics that affect value, not the elements. Physical, economic, social, and governmental influences are the four forces influencing value. Cost, price, value is a separate distinction: value is worth, price the amount paid, cost the expense to build or acquire.
Progression and regression
Progression: the worth of a lesser-valued object tends to be enhanced by association with many higher-valued objects — the modest house on a street of expensive homes.
Regression is the mirror image: a greater-valued property is reduced by association with lesser-valued ones. The trap is picking the wrong half of the pair, so anchor on the subject: the cheap house among expensive ones is progression.
Contribution, and the over-improvement math
A component part is valued in proportion to its contribution to the value of the whole, not by what it cost. An owner spends $40,000 on an addition; buyers pay only $25,000 more. The contribution is $25,000, and the remaining $40,000 − $25,000 = $15,000 is an over-improvement the owner never recovers. Two traps: $40,000 equates cost with value, and $15,000 reports the unrecovered amount rather than the contribution.
Plottage is the added value from assembling smaller parcels into one larger parcel; balance is equilibrium among a property's elements, which over-improvement violates.
Anticipation, substitution, and the rest
Anticipation holds that value is created by the anticipated future benefits of the property; it is the foundation of the income approach. Substitution holds that value tends to be set by the cost of acquiring an equally desirable substitute; it underpins the appraisal process generally and the sales comparison approach in particular. Conformity concerns compatible land uses and architectural harmony; competition, profits attracting competitors; change, the neighborhood life cycle of growth, stability, decline, and revitalization.