What Is the Principle of Conformity in Real Estate?

Real estate appraisal assesses a property’s market value using several economic principles. These principles help appraisers understand how properties function within their markets. One fundamental principle is conformity.

Understanding the Principle of Conformity

The principle of conformity suggests that a property achieves its highest value when it aligns harmoniously with its surroundings. This concept emphasizes a reasonable degree of homogeneity, not monotonous uniformity, among properties. For instance, if homes in an area generally have similar architectural styles, sizes, and uses, they contribute to a cohesive environment. This harmony is why properties built in the same style as others in an area often see their values increase.

The principle extends to various property attributes, including architectural design, property size, age, condition, and even the use of the land. When properties generally conform to these neighborhood standards, it creates a sense of consistency. This consistency can positively influence property prices and enhance desirability within the market.

Impact on Property Valuation

Appraisers utilize the principle of conformity when determining a property’s market value. Properties that conform well to the prevailing characteristics of their neighborhood generally command higher values and are more appealing to potential buyers. Conversely, a property that deviates significantly from the neighborhood’s norms can experience a negative impact on its value.

This depreciation can occur if a property is either over-improved or under-improved relative to the other homes in the area. An over-improved property, featuring upgrades or amenities far exceeding what is typical for the neighborhood, may not see a return on investment proportional to the money spent. Similarly, an under-improved property, lacking amenities or maintenance common in the area, can also experience a reduced value. Appraisers consider these imbalances in the market, as they can lead to different pricing for otherwise comparable properties.

Real-World Examples of Conformity

Imagine a modest bungalow located within a neighborhood primarily composed of large, luxury homes. Despite any internal upgrades, the bungalow might not achieve its full potential value because it is over-improved for its immediate environment. The surrounding larger homes, while perhaps increasing the bungalow’s value somewhat through the principle of progression, still highlight its non-conformity, potentially limiting its market appeal and resale value.

Conversely, consider a dilapidated property in a meticulously maintained and uniform subdivision. This under-improved home can negatively affect the values of the surrounding, well-kept properties through a concept known as regression. In residential areas, consistent architectural styles, similar lot sizes, and uniform property uses within a subdivision are common examples of conformity. For instance, a neighborhood where all homes have two-car garages might see a property with only a one-car garage valued lower.