Which principle states that real estate value is influenced by surrounding properties?

The principle that asserts real estate value is influenced by surrounding properties is known as the Principle of Externalities. This principle operates on the understanding that external factors, such as the characteristics and conditions of neighboring properties, can have a significant impact on the value of a given property.

For instance, a well-maintained park, good schools, and attractive retail establishments nearby can enhance the desirability of a residential area, thereby increasing property values. Conversely, the presence of undesirable elements, such as industrial sites or poorly maintained neighboring properties, can negatively affect property values.

This principle highlights the interconnectedness of real estate within a community, emphasizing that the local environment and characteristics of nearby properties play a critical role in determining the value of an individual property. Recognizing these external influences is crucial for accurately assessing property value, making it an essential concept in real estate valuation.