The fear that construction of a factory nearby will decrease the value of a property illustrates which principle?

• A. Externalities
• B. Anticipation
• C. Substitution
• D. Conformity

Answer: (A)

Externalities involve the effects of actions by others on property value. The fear that a factory nearby will lower the value of a property is a negative externality: an outside development creates costs that spill over to neighboring properties, such as pollution, noise, traffic, or a diminished sense of desirability, which can reduce what buyers are willing to pay. In appraisal, you must consider these external pressures when estimating value, since they come from outside the property’s own features. This isn’t about expecting future benefits or costs (anticipation), nor about substituting one property for another (substitution), nor about how well a property conforms to neighborhood norms (conformity).