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Valuation & Market Analysis term

Principle of Conformity

The idea that property value is maximized when a property's use is similar to surrounding properties.

Why Principle of Conformity matters on the exam

This term belongs to Valuation & Market Analysis. The questions below are real items from Freehold's bank that use it - each one cites its source.

Exam questions using Principle of Conformity

Every Freehold question shows why the right answer is right — and cites its source.

A buyer refuses to pay more for a home than the cost of a similar home nearby. This illustrates which principle of value?

  1. Principle of anticipation
  2. Principle of conformity
  3. Principle of substitution
  4. Principle of contribution
Show answer & explanation

Principle of substitution — The principle of substitution holds that a buyer will not pay more for a property than the cost of acquiring an equally desirable substitute. It underlies the sales comparison approach to value.

Source: PSI National Real Estate Exam Content Outline §3 Valuation & Market Analysis

Homes in a subdivision that share a reasonably similar architectural style, size, and quality tend to maintain higher values than a home that clashes with its surroundings. This illustrates the principle of:

  1. Contribution
  2. Conformity
  3. Anticipation
  4. Substitution
Show answer & explanation

Conformity — The principle of conformity holds that property values are maximized when land use is reasonably consistent with surrounding properties in style, size, and quality.

Source: PSI National Real Estate Exam Content Outline §3 Valuation & Market Analysis

A structurally sound older single-family home sits on a large lot in an area recently rezoned for high-density multifamily development. A developer demolishes the home to build an apartment building. This decision most directly reflects:

  1. Functional obsolescence in the cost approach
  2. Physical deterioration of the site
  3. The principle of conformity
  4. A change in the highest and best use of the land
Show answer & explanation

A change in the highest and best use of the land — When zoning and market conditions change, the highest and best use of land can shift; here the land's most profitable legal use became multifamily development, making demolition of the existing home economically rational.

Source: PSI National Real Estate Exam Content Outline §3 Valuation & Market Analysis

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