What economic principle of value describes when a lower-quality property can diminish the value of a higher-quality property?

The principle of regression explains how the presence of a lower-quality property can negatively impact the value of a higher-quality property in the vicinity. This principle operates on the logic that when more modest homes or properties are located near higher-value ones, they can cause the overall desirability and market value of the superior properties to decrease. This typically occurs because potential buyers perceive the lower-quality properties as diminishing the appeal of the area, leading to a reduction of demand for the more expensive properties.

Understanding regression is vital for real estate professionals, as they must accurately assess the influence of surrounding properties on market values. This principle highlights the importance of location and neighborhood quality in property valuation. Factors considered could include neighborhood safety, amenities, and overall community appeal—all influenced by the presence of both high and low-quality properties.