Illinois real estate exam glossary
Principle of regression
The best-built home on a block does not automatically recover everything spent on it. But being the largest or most expensive home is not proof of a value loss either. Regression asks how lower-value properties of the same type in the surrounding area affect the superior property’s value. The answer needs evidence, not a neighborhood stereotype.
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The short answer
The principle of regression describes a downward influence on a superior property’s value from its association with lower-value properties of the same type in the same area. It is paired with progression, the upward influence on a lesser property from superior surroundings. Regression is a tendency to investigate, not a fixed discount, a requirement to use the neighborhood median, or a finding based on the people who live nearby. Cost exceeding contributory value alone does not prove regression.
Reviewed October 27, 2026. Economic principles and property characteristics appear in national III.B.1 of the PSI Illinois broker outline. The entire Valuation domain has eight of 100 scored national questions across several subjects, not eight on regression alone. These are original teaching questions, not recalled PSI items or a validated readiness score.
Identify the surrounding influence before measuring it
- Start with the classic comparison. The superior property is the one potentially affected downward by lower-value properties of the same type in its surroundings. Progression describes the opposite direction for the lesser property. These labels concern property characteristics and market relationships, not the social status or protected identity of residents.
- Find the actual competing market. Identify the property interest, use, condition, quality, size, site, location, buyer alternatives and effective date. Immediate surroundings matter, but a waterfront, acreage or specialty property may draw buyers across a wider area. Do not redraw a neighborhood just to obtain a desired number; explain why the chosen comparables compete for the same participants.
- Distinguish unsupported cost from a surrounding-property effect. Contribution asks what a component adds to the whole property. A renovation can cost more than it adds because of design, condition, tastes, timing or other causes. That cost-versus-value gap does not, by itself, establish regression. Look for evidence connecting the superior property’s limited premium to the surrounding competitive context.
- Check over-improvement without erasing all value. Fannie Mae describes an improvement larger or costlier than is typical for the neighborhood, and requires attention to its contributory value under that program. Such a feature can still contribute positively and remain within the area’s price range. Over-improvement alone does not automatically make the property ineligible for Fannie Mae financing; the full appraisal and loan requirements still apply.
- Separate conformity from sameness. Compatible uses and reasonable similarity can support value without making every property identical. A distinct design, large site or rare view can have supported market appeal. Price rank, visual difference or a neighborhood’s predominant price alone is not a measured regression adjustment.
- Use relevant, verified evidence. Analyze suitable closed sales and other applicable market data, the alternatives buyers consider, supported differences and the period being valued. Nearby modest properties may explain context without being the best direct comparables for a specialty home. A distant sale needs a competitive-market explanation, not merely a convenient price.
- Adjust for differences the market recognizes. A supported location, quality or feature adjustment is different from construction cost or a fixed percentage. For a comparable superior to the subject in the stated characteristic, subtract its supported advantage; for an inferior comparable, add the supported shortfall. The adjustment modifies the comparable toward the subject, not the subject toward the comparable. For example, a comparable at $680,000 with a stipulated $45,000 location advantage and no other differences indicates $635,000 after that adjustment. One adjusted sale is not a completed appraisal.
- Keep the time comparison clear. A broad market decline, weaker credit conditions or longer marketing time can affect value without proving regression. Under the identified Fannie Mae policy, market-condition adjustments examine the comparable’s contract date to the appraisal’s effective date. A twelve-month trend and the relevant adjustment interval can differ; neither an adjustment nor no adjustment should be an unsupported assumption.
- Avoid counting the same influence twice. If a sales indication already reflects the subject’s surrounding context, a second standalone regression deduction can duplicate the effect. Functional excess, external influences, physical condition and location differences need their own supported treatment and reconciliation. The regression label does not create another mandatory line-item deduction.
- Do not turn reduced contribution into a demolition instruction. A feature can be overbuilt yet remain useful. A highest-and-best-use conclusion considers legal permission, physical possibility, financial feasibility and maximum productivity, with the relevant as-vacant and as-improved analyses. Removal or conversion needs its own costs, timing and feasible alternative; it does not follow automatically from a cost shortfall.
- Use objective language and lawful evidence. Describe actual property uses, conditions, access, supply, demand and supported market differences. Protected-class identity is not a value factor. Do not replace it with coded statements about the kind of people who belong in an area. The listed Fannie Mae rules are program policy; federal and Illinois housing protections require their own actual scope.
- State the conclusion at the right level. A short exam question can supply a clear surrounding-property influence and ask for the principle. A live value opinion needs an identified interest, date, evidence, applicable scope and professional requirements. Statistical regression is a separate analytical technique; the shared word does not make a model’s output proof of this economic principle or of a lawful appraisal. A price pair identifies an isolated surrounding effect only when the exercise supplies that isolation or the actual analysis supports it; two unadjusted sale prices do not establish causation.
| Question | Evidence | Exam warning |
|---|---|---|
| Which property is affected? | The superior property in the stated surrounding context | Do not reverse regression and progression |
| What causes the influence? | Association with lower-value properties of the same type | A cost shortfall alone does not prove the cause |
| Which market matters? | Actual competing properties, interests and uses | Closest, largest or most expensive is not decisive |
| How much is the effect? | Supported market reaction and relevant date | No fixed percentage or automatic median cap |
| Has it already been reflected? | Comparable adjustments and reconciled indications | Do not deduct one effect twice |
| What language is appropriate? | Specific, objective property and market facts | No protected-identity or coded demographic inference |
The distinctions that matter
| Distinction | How it works | What to notice |
|---|---|---|
| Regression vs. progression | Regression concerns downward influence on the superior property from lower-value surroundings of the same type. Progression concerns upward influence on the lesser property from superior surroundings. | Superior pulled down versus lesser pulled up. |
| Regression vs. depreciation | Regression identifies a surrounding-property influence. Appraisal depreciation concerns loss relative to a cost-new reference; physical, functional and external causes are distinct. It is not a tax depreciation schedule. | Directional context versus quantified improvement loss. |
| Over-improvement vs. high quality | A larger or costlier-than-typical improvement calls for analysis of contribution. High quality and atypical size do not automatically mean zero value or loan ineligibility. | Unsupported excess versus supported superiority. |
| Cost vs. contribution | Cost is the expenditure to create a feature. Contribution is the amount that feature adds to total property value. | Money spent versus value added. |
| Superadequacy vs. regression | Superadequacy concerns a feature excessive in quality or amount relative to typical utility. Regression concerns a surrounding-property influence; a feature’s cost shortfall alone does not establish it. | Feature-level excess versus market-context principle. |
| Diminishing return vs. negative return | Diminishing return means each added dollar produces less value than the prior dollar. Negative return means the additional action can reduce total value. | Smaller gain versus actual loss. |
| Immediate neighborhood vs. competitive market | The immediate neighborhood is the local setting. The competitive market includes alternatives considered by the subject's buyer segment, sometimes across a wider geography. | Closest surroundings versus true substitutes. |
| Most expensive vs. over-improved | Most expensive is a price rank. Over-improved is an economic conclusion that some cost or utility is not fully supported. | Observed ranking versus unsupported contribution. |
| Location adjustment vs. functional superadequacy | A location difference, functional excess and physical condition have different causes. Explain the supported influence and avoid making several deductions for the same effect. | Where it is versus what was overbuilt. |
| Market value vs. investment cost | Market value reflects typical participant behavior under the definition. Investment cost is what a particular owner spent and may not be recoverable. | Market-supported worth versus owner expenditure. |
| Objective factor vs. demographic proxy | Property and market evidence can support value analysis. Protected-class identity or a coded substitute for it cannot be a value factor. | Market fact versus protected-class inference. |
| Regression tendency vs. fixed deduction | Regression describes directional influence. A deduction or adjustment requires subject-specific market evidence and no universal rate. | Principle versus measured amount. |
| Economic principle vs. statistical regression | The principle concerns surrounding-property influence. Statistical regression models relationships among variables; its output needs its own data, scope and validation. | Read whether the question asks for an economic principle or a modeling method. |
Work through the facts
A luxury home exceeds local support
An owner spends $1.8 million creating a custom home. The exercise supplies evidence that otherwise competitive local properties generally sell near $1.3 million and that buyers seeking the subject’s features consider luxury properties elsewhere. No completed appraisal or isolated dollar effect is supplied.
- The expenditure is not an appraised market value.
- The supplied surrounding-property context raises a regression question.
- The $500,000 arithmetic gap between cost and the comparison price is not automatically the subject’s value loss or an adjustment.
Answer: Investigate the surrounding influence and supported premium. Do not cap the subject at $1.3 million, treat $1.8 million cost as its former value or deduct $500,000 without the needed evidence.
The largest house has a justified premium
The subject is the largest home nearby, but it has rare waterfront frontage. Verified regional waterfront sales show buyers pay strongly for the frontage and search across multiple neighborhoods. The exercise supplies actual competitive support, not an assumed premium for every waterfront property.
- Immediate size rank does not define the market.
- The stated frontage, use and location have supported utility; no automatic conclusion about separate water rights is supplied.
- Regional substitutes may demonstrate that the premium is not over-improvement.
Answer: Do not claim regression solely because the subject is largest or highest priced in its immediate neighborhood.
Renovation cost exceeds contribution
An owner spends $180,000 on luxury finishes. Paired and resale evidence indicates the work adds about $95,000 in the subject's buyer market. Treat that $95,000 contribution as a supplied, isolated market finding with no other changes; the cause of the shortfall has not been established.
- The work has a positive supplied contribution of $95,000.
- $180,000 − $95,000 = $85,000 of cost not reflected in that contribution.
- The gap alone does not isolate regression, establish a separate deduction from a value already reflecting the work, or measure total investment profit.
Answer: Use the stipulated $95,000 contribution. Investigate the cause separately; do not automatically call the $85,000 gap regression or subtract it again from an already-supported property value.
A larger garage reaches diminishing returns
Moving from no garage to two spaces adds strong value. Adding a third space adds some value. Expanding from six to eight spaces adds almost none for typical buyers in this residential market.
- Marginal contribution changes as utility needs are satisfied.
- Later spaces can cost the same while adding less value.
- The six-to-eight-space expansion can be a superadequacy even though garage utility is desirable generally.
Answer: Apply market contribution to each increment rather than one constant per-space amount. Smaller positive additions are not the same as a negative effect on the whole property, and the pattern alone does not prove regression from surrounding properties.
A nearby modest sale is not enough
A high-quality subject has no close local substitutes. Verified sales in two competing market areas attract the same buyer segment and match its design, quality, and price tier.
- The immediate modest sales explain local context.
- Competing-area sales may better measure superior-feature support.
- Location differences and market-area comparability still require explanation and adjustment.
Answer: Use competitive evidence with explained location and other differences. A higher-priced distant sale is not appropriate merely because it produces a preferred result.
A downturn reduces luxury buyer depth
Credit tightens, high-end inventory rises, and marketing times lengthen. The subject's premium features remain attractive but fewer qualified buyers can pay for them.
- Feature utility has not disappeared.
- Market-cycle conditions reduce buyer depth and liquidity.
- Current regression risk and contribution can differ from the prior rising market.
Answer: Update the effective-date market analysis. The broader downturn does not, by itself, establish a regression effect caused by lower-value surrounding properties.
Objective evidence replaces a stereotype
An appraiser explains limited premium support through verified price distribution, property types, buyer search, inventory, financing, marketing time, and competing luxury areas.
- Each factor relates directly to market competition.
- Resident identity is irrelevant to the value analysis.
- These facts permit a testable market explanation; listing objective-sounding variables alone is not a complete fair-housing or appraisal-compliance determination.
Answer: Use relevant objective property and market evidence, excluding protected-class identity and coded substitutes. The example does not certify every method, variable, model or actual appraisal as lawful.
Do not deduct an already-reflected effect again
A teaching exercise supplies a supported $620,000 sales-comparison indication that already fully reflects a $60,000 surrounding-location effect. No other adjustment is needed. A student proposes deducting that same $60,000 again as regression.
- The stated indication already includes the relevant effect.
- Subtracting the same effect again would produce $560,000 and duplicate it.
- The exercise supplies the supported indication; it is not a private appraisal of a real home.
Answer: Keep the stipulated $620,000 indication for this exercise. The regression label alone does not authorize a second $60,000 deduction.
An isolated comparison supplied by the exercise
A hypothetical exercise supplies $700,000 for a superior property interest in one setting and $650,000 for the equivalent interest affected by lower-value properties of the same type nearby. It expressly holds the effective date, rights, physical utility, condition and all other influences constant, and attributes the entire difference to that surrounding association.
- $700,000 − $650,000 = $50,000.
- The superior property is the one influenced downward under the stated isolation.
- The exercise supplies the cause; two actual unadjusted sales would not establish it by themselves.
Answer: The supplied regression effect is $50,000 in this hypothetical comparison. It is not a universal percentage, median cap, guaranteed actual sale price or independently established local appraisal result.
Smaller positive contribution is still positive
A teaching exercise supplies two successive $40,000 garage expansions. The first adds $20,000 to whole-property value; the next adds $5,000. These are isolated current-value contributions with all other conditions held constant, not predictions of resale profit.
- The first supplied contribution is 50% of its $40,000 cost.
- The next contribution is 12.5% of its $40,000 cost and still positive.
- The combined $80,000 cost adds $25,000; the $55,000 cost gap does not, alone, establish regression or a separate value deduction.
Answer: The later increment has a smaller positive contribution, not a negative contribution. A negative whole-value effect would require different facts. The example does not measure complete investment profit or prescribe construction.
Mistakes to avoid
- Assuming the most expensive property must regress Identify its actual buyer market and test whether superior rights, utility, or scarcity support the premium.
- Reducing value to the neighborhood median Predominant price, mean and median are different statistics. None automatically fixes this subject’s value or removes every supported premium.
- Using a fixed regression percentage Derive the effect from sales, contribution, income, buyer depth, marketing time, and market-area analysis.
- Equating cost with value added Contribution depends on market reaction, not invoices.
- Calling every high-quality feature a superadequacy High quality is fully supported when relevant buyers recognize its contribution.
- Ignoring the broader market Luxury, specialty, waterfront, historic, acreage, and other segments may compete across neighborhoods.
- Ignoring immediate context Broader comparables do not erase subject location, surrounding land use, access, and local buyer reaction.
- Confusing regression and physical deterioration Regression concerns market support; worn materials concern condition.
- Confusing regression and external obsolescence A general downturn or external loss is not automatically regression. Identify the actual cause and whether the surrounding-property influence has been isolated.
- Deducting superadequacy twice Coordinate cost depreciation, sales adjustments, location influence, and reconciliation.
- Assuming diminishing return means zero return Later investment can still add value, just less value per additional dollar.
- Ignoring buyer financing Affordability, down payment, credit availability, appraisal support, and market liquidity can narrow the buyer pool.
- Ignoring market cycle Premium support changes with inventory, credit, interest rates, income, construction, and high-end demand.
- Using protected-class composition Use objective property, price, income, access, supply, demand, use, and marketability factors only.
- Treating regression as investment advice A live decision requires acquisition, cost, financing, time, tax, sale, risk, and individual-objective analysis beyond the principle.
- Calling every renovation shortfall regression Contribution can be below cost for several reasons. Establish the surrounding-property influence separately.
- Treating a model coefficient as the economic principle Statistical regression analyzes relationships among variables. It does not automatically identify this principle, establish causation or guarantee a lawful valuation.
Check your understanding
These are original teaching questions, not recalled or predicted PSI questions. Answer first, then explain why the other choices fail.
1. The exercise establishes downward value influence on a superior home from lower-value homes of the same type in its surroundings. Which principle is illustrated?
- Mortgage principal reduction
- Downward value influence on a superior property from insufficient market support
- Tax basis recovery
- Upward influence on a lesser property
Show answer and explanation
Answer: B. Downward value influence on a superior property from insufficient market support
This is the classic regression relationship. It does not require all superiority to disappear or supply a fixed dollar discount. Cost being greater than contribution alone would not establish the stated surrounding cause.
2. What is progression?
- Loan amortization
- Physical wear
- Downward influence on a superior property
- Upward influence on a lesser property from stronger surroundings
Show answer and explanation
Answer: D. Upward influence on a lesser property from stronger surroundings
Progression is the paired opposite tendency commonly tested with regression.
3. What is an over-improvement?
- Every new roof
- Any improvement larger than assessed value
- An improvement whose cost or utility exceeds market support
- Every expensive property
Show answer and explanation
Answer: C. An improvement whose cost or utility exceeds market support
Analyze the particular feature and market. Fannie Mae describes larger or costlier-than-typical improvements and focuses on their contribution; atypical does not automatically mean zero value or ineligibility.
4. An owner spends $120,000 and the market adds $75,000. What does contribution show? Treat the $75,000 as isolated supported contribution; no cause of the cost shortfall is supplied.
- Land value falls $45,000 automatically
- The property must add $120,000
- The improvement adds nothing
- The improvement adds $75,000, not automatically $120,000
Show answer and explanation
Answer: D. The improvement adds $75,000, not automatically $120,000
The supplied contribution is $75,000. The $45,000 cost gap alone does not prove regression, automatically reduce land value or justify subtracting the gap again from an already-supported whole value.
5. Does the largest home always suffer regression?
- Yes, without exception
- No, its actual competitive market may support the premium
- Yes, at a fixed 20 percent
- Only if it is new
Show answer and explanation
Answer: B. No, its actual competitive market may support the premium
Scarcity, rights, utility, location, and broader buyer search can justify superiority.
6. What does diminishing return mean?
- Cost always equals value
- Every additional improvement lowers total value
- The property cannot sell
- Additional investment adds progressively less value per dollar
Show answer and explanation
Answer: D. Additional investment adds progressively less value per dollar
Later increments can add less while remaining positive. Do not equate a smaller marginal addition with a negative total-value effect, or treat either pattern alone as proof of surrounding-property regression.
7. What is the best response when no close local luxury comp exists?
- Assume no premium
- Use any modest house next door without adjustment
- Use the best competitive market-area evidence with explanation and location analysis
- Use construction cost as value
Show answer and explanation
Answer: C. Use the best competitive market-area evidence with explanation and location analysis
Use evidence competitive for the same market participants and explain location differences. Fannie Mae’s program guidance is not a universal distance rule or permission to choose a higher result.
8. Is there a universal regression adjustment?
- No, the amount requires market evidence
- Yes, always 10 percent
- Yes, set by the county assessor
- Yes, equal to construction cost
Show answer and explanation
Answer: A. No, the amount requires market evidence
Regression is a principle; its effect varies by subject, market, time, and buyer segment.
9. Which evidence is improper in regression analysis?
- Verified buyer search patterns
- Protected-class composition
- Sale prices and marketing time
- Property type and land use
Show answer and explanation
Answer: B. Protected-class composition
Value analysis uses objective property and market factors, not resident identity or demographic proxies.
10. What must reconciliation identify?
- Only assessed value
- Only original cost
- Only the neighborhood median
- Which superior features remain supported and which premium is not
Show answer and explanation
Answer: D. Which superior features remain supported and which premium is not
Explain supported feature contribution and any surrounding influence without erasing all superiority or imposing a new deduction already reflected in the evidence.
11. A renovation costs $180,000 and has a supplied isolated contribution of $95,000. What is the arithmetic cost gap?
- $275,000 of total profit
- $85,000, without establishing its cause
- $180,000 of zero contribution
- $95,000 of automatic regression
Show answer and explanation
Answer: B. $85,000, without establishing its cause
The difference is $85,000. It is not automatically an appraisal adjustment, whole-property loss, proof of regression or investment-profit calculation.
12. A supported $620,000 indication already includes a $60,000 surrounding-location effect. No other adjustment is needed. What does a second deduction of that same effect do?
- It establishes the tax assessment
- It is always required by regression
- It proves the original cost
- It duplicates the effect
Show answer and explanation
Answer: D. It duplicates the effect
The given indication already reflects the effect. Subtracting again would produce $560,000 without a new independent basis; keep the stipulated $620,000 for the exercise.
13. An owner has a cost shortfall but no evidence about surrounding-property influence. What can be concluded?
- All value is zero
- The cost shortfall alone does not prove regression
- The land must be demolished
- Regression is automatically established
Show answer and explanation
Answer: B. The cost shortfall alone does not prove regression
Contribution, functional issues, timing and other causes can explain a shortfall. Isolate the surrounding-property relationship before naming this principle as its cause.
14. A comparable sold for $680,000. It has a supported $45,000 location advantage over the subject, and no other adjustment is needed. What is its adjusted indication?
- $725,000
- $45,000
- $635,000
- $680,000 plus construction cost
Show answer and explanation
Answer: C. $635,000
Subtract the comparable’s stipulated advantage: $680,000 − $45,000 = $635,000. This single adjusted sale is not a complete appraisal or automatic subject-price ceiling.
15. Does an over-improvement automatically make a property ineligible for Fannie Mae financing?
- No, every such loan is automatically approved
- Yes, if it is above the median
- Yes, every atypical feature is prohibited
- No; contribution and all applicable requirements still need review
Show answer and explanation
Answer: D. No; contribution and all applicable requirements still need review
The identified policy says over-improvement does not necessarily make the property ineligible. That qualification is not a loan approval or a waiver of other program requirements.
16. What is the neighborhood’s predominant price under the identified Fannie Mae policy?
- The mean of every sale
- The most common or most frequently found price
- The highest possible price
- A mandatory cap on every subject
Show answer and explanation
Answer: B. The most common or most frequently found price
Predominant means most common, not automatically mean or median. It does not by itself measure this subject’s supported premium or regression effect.
17. A broad regional price decline occurs. Does that fact alone establish regression for this superior home?
- No, market conditions never matter
- No; the surrounding-property influence must be identified separately
- Yes, any decline is regression
- Yes, every home loses the same premium
Show answer and explanation
Answer: B. No; the surrounding-property influence must be identified separately
Market change and the regression principle answer different questions. Analyze the effective-date evidence rather than naming every decline regression.
18. What does statistical regression do?
- Guarantees unbiased property values
- Automatically proves the economic principle of regression
- Requires every property value to fall
- Models relationships among variables
Show answer and explanation
Answer: D. Models relationships among variables
The analytical technique is distinct from the surrounding-property principle. Data quality, model scope, supported interpretation and lawful use still matter.
19. An appraiser uses a coded label for residents’ protected-class identity to reduce a superior home’s value. Is calling it regression a valid substitute for objective evidence?
- Yes, if the label avoids naming the class
- Yes, whenever a neighbor’s price is lower
- No; the label does not make protected-identity valuation proper
- Yes, if software produced the phrase
Show answer and explanation
Answer: C. No; the label does not make protected-identity valuation proper
Use actual property and market evidence. A euphemism or model does not turn protected-class identity into a lawful value factor.
20. Which statement about highest and best use is accurate?
- Original construction cost decides the use
- Only the neighborhood median matters
- Every luxury home must be removed
- An overbuilt feature does not by itself require demolition
Show answer and explanation
Answer: D. An overbuilt feature does not by itself require demolition
Legal permission, physical possibility, financial feasibility and maximum productivity require analysis. Continued use, renovation and removal have their own facts and costs.
21. A home costs $1.8 million to create and a supplied nearby comparison price is $1.3 million. No isolated market effect is supplied. What can the $500,000 difference establish by itself?
- An automatic $500,000 regression deduction
- An exact $1.3 million subject value
- A mandatory demolition order
- Only the arithmetic difference between the supplied numbers, not a measured regression loss
Show answer and explanation
Answer: D. Only the arithmetic difference between the supplied numbers, not a measured regression loss
Cost and comparison price are different concepts. The surrounding relationship and supported subject value require evidence; subtracting the two numbers does not supply that analysis.
22. A hypothetical isolates surrounding association as the sole cause of a superior interest’s value changing from $700,000 to $650,000. What is the supplied effect?
- $50,000 downward
- $650,000 of construction cost
- A universal 7.14% discount for every property
- $50,000 upward
Show answer and explanation
Answer: A. $50,000 downward
The stipulated difference is $50,000 and the direction is downward for the superior interest. The causal isolation is supplied by the exercise, not proven by two unadjusted sales.
23. Two equal-cost improvements add $20,000 and then $5,000 under isolated supplied facts. Which statement is accurate?
- Regression has been proven solely from the smaller contribution
- The whole property must lose $5,000
- The later contribution is smaller but still positive
- The later contribution is automatically negative
Show answer and explanation
Answer: C. The later contribution is smaller but still positive
A shrinking positive increment is different from a negative whole-value effect. These amounts alone do not establish a surrounding-property influence or complete project profit.
24. Under the identified Fannie Mae policy, which interval is relevant to a comparable’s market-condition adjustment?
- Every neighborhood’s twelve-month percentage without analysis
- Always the closing date to today
- Always the owner’s original purchase date
- The comparable’s contract date to the appraisal’s effective date
Show answer and explanation
Answer: D. The comparable’s contract date to the appraisal’s effective date
The relevant interval can differ from the broad annual trend. Evidence must support an adjustment or no adjustment; the policy is not a universal future-price forecast.
Common questions
What is the principle of regression?
It is a downward value influence on a superior property from association with lower-value properties of the same type in the same area. The question is the surrounding-property relationship. It is not a law that the largest house must lose value, or a fixed percentage deducted from every expensive home.
What is a simple example of regression?
An exercise may establish that a high-quality home receives less market support because it sits among lower-value homes of the same type, compared with an otherwise relevant setting. That illustrates regression. A real dollar effect needs supported comparisons and other differences accounted for; the price of the cheapest or most expensive nearby sale is not automatically the answer.
How is regression different from progression?
Identify which property is affected. Regression concerns the superior property influenced downward by lower-value surroundings; progression concerns the lesser property influenced upward by superior surroundings. Both relate to property and market context, not resident identity, guaranteed future appreciation or a uniform percentage.
Is regression the same as depreciation?
No. The economic principle identifies a surrounding-property influence. Appraisal depreciation concerns loss relative to a cost-new reference and can involve physical, functional or external causes. Tax and accounting depreciation are separate concepts. A new, well-maintained building can still have a market-support issue, and physical wear alone is not regression.
What is an over-improvement?
Fannie Mae describes an improvement larger or costlier than is typical for the neighborhood and requires its contributory value to be considered. Broader economic analysis also asks whether the market supports its utility and cost. An atypical feature can still add value, lie within the neighborhood’s price range and avoid automatic loan ineligibility. The particular property and program requirements still matter.
Does the most expensive house always suffer regression?
No. A price rank does not identify its competitive market or supported utility. Waterfront, acreage, a rare view or another relevant feature may attract buyers across a wider area. Those characteristics need evidence too; none guarantees a premium. Do not cap every superior property at a local median or assume that a high asking price is an appraised value.
Does renovation cost equal value added?
No. Contribution is the component’s effect on the whole property, which can differ from its cost. The supplied $180,000 renovation and $95,000 contribution produce an $85,000 arithmetic shortfall. That difference alone does not establish regression, determine total profit or justify another deduction from a whole value already reflecting the work.
Which comparables should be used for a superior property?
Use competitive properties relevant to the same participants and explain their physical, legal and location differences. The nearest modest sale may supply context while a sale in a genuinely competing market better represents the subject’s alternatives. A distant high-priced sale is not appropriate just because it supports a preferred result. The identified Fannie Mae guidance has its own program scope.
Is there a fixed regression discount?
No. Neither the principle nor the stated facts create a universal 10% or 20% adjustment. Market reaction, suitable data, relevant dates and supported differences matter. Construction cost, a neighborhood median or a model coefficient is not automatically the amount of regression. Avoid deducting an influence already reflected in the sales indications.
Can residents’ identity support a lower value?
Protected-class identity is not a valuation factor. Use relevant property and market facts, and do not substitute coded demographic language. Objective-sounding variables, software or an economic-principle label do not by themselves establish compliance. Federal and Illinois housing protections and actual appraisal requirements retain their own scope; this page does not determine an individual discrimination claim.
Does a weak housing market automatically mean regression?
No. Market decline, changing financing and the specific surrounding-property influence are different issues. The effective date matters, and a comparable’s contract-to-effective-date interval can differ from the broad annual trend. Analyze the actual cause and period instead of calling every decline regression.
Does regression require a feature to be removed?
No. An overbuilt feature can retain positive utility and value. Highest and best use considers legal permission, physical possibility, financial feasibility and maximum productivity. Relevant as-vacant and as-improved analyses and the cost of a feasible change matter; the label does not approve demolition, rezoning or a renovation plan.
Is economic regression the same as regression analysis?
No. Economic regression describes the surrounding-property principle. Statistical regression models relationships among variables and can be used in valuation analysis when appropriate. A model is not a substitute for relevant data, supported interpretation, professional requirements or nondiscrimination. Its output alone does not prove causation or that this principle affected a particular home.
Where is regression on the Illinois broker outline?
National III.B.1 covers economic principles and property characteristics. The whole Valuation domain has eight of 100 scored national questions, spread across several subjects. There is no eight-question regression quota. This page’s questions are original explanations for study, not recalled PSI items, an appraisal or a validated readiness score.
How do I recognize regression in an exam question?
Identify the property being affected, the source of the influence and the direction. A superior property affected downward by lower-value properties of the same type points to regression. A lesser property affected upward points to progression. If the facts only compare a renovation invoice with its contribution, the question may instead concern contribution or functional excess; do not add an unstated surrounding cause.
Should I deduct a separate regression percentage after adjusting comparables?
Not automatically. First ask whether the supported comparable adjustments or reconciled indication already reflect the surrounding influence. Deducting the same effect twice understates the indication. A further adjustment needs its own independent supported basis; the principle’s name does not supply one or dictate a fixed percentage.
Do the examples establish the value of a real house?
No. The arithmetic uses explicitly supplied values, isolated effects and stated assumptions. The $700,000 versus $650,000 comparison supplies the surrounding cause for teaching; two raw sales would not prove it. The $680,000 comparable minus its supplied $45,000 advantage gives a $635,000 adjusted indication, not a completed appraisal. Actual scope, interest, effective date, comparable verification, other influences and reconciliation still matter.
Which appraisal standards apply in Illinois as of October 2026?
Illinois Rule 1455.240 incorporates the 2024 USPAP edition, with its stated qualifications, rather than automatically adopting every later publication. The Appraisal Foundation’s 2026 Guidance and Reference Manual is separate from a new standards edition. This glossary does not reproduce or audit the full paid standards text, a complete UAD reporting supplement or all requirements for a particular assignment. California reference material explains the principles here; it does not determine Illinois licensing duties.
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Official sources and scope
Sources and identified provisions reviewed through October 27, 2026. IAAO and the California DRE reference explain the economic principles; California licensing material is not Illinois law. The identified Fannie Mae topics are dated June 4, 2025, distinct from the guide’s October 2026 publication date, and apply within their program scope. Illinois standards incorporation is a separate rule. The examples stipulate effects rather than appraising a real property; no full paid USPAP text or complete UAD 3.6 supplement is claimed to have been reviewed.
- PSI Illinois Candidate Information Booklet: National Valuation scope
- IAAO Glossary, third edition: regression, contribution and statistical regression
- California DRE reference, page 385: regression and related economic principles
- Fannie Mae B4-1.3-03, June 4, 2025: predominant price and over-improvements
- Fannie Mae B4-1.3-08: comparable selection
- Fannie Mae B4-1.3-09: market-supported comparable adjustments
- Fannie Mae B4-1.3-04: site influence and highest and best use
- Fannie Mae B4-1.3-11: reconciliation and explained weighting
- 12 CFR34.42: federal appraisal and market-value definitions
- Fannie Mae B4-1.1-04, June 4, 2025: supported and nondiscriminatory analysis
- 42 U.S.C. 3605: discrimination in residential real estate-related transactions
- 775 ILCS 5/3-102: covered conduct, advertising and discriminatory effects
- 68 Ill. Adm. Code 1455.240: incorporated USPAP edition and qualified exception
- The Appraisal Foundation: current 2024 USPAP and April 2026 technology guidance
This is exam preparation, not advice for a specific transaction. State law and the applicable facts control. Our editorial and corrections process explains how to report an issue.