California Real Estate Practice Exam

You remodel your bathroom, spending $10,000, but it only adds $5,000 in value. This exemplifies what principle?

1. Diminishing returns

2. Contribution

3. Substitution

4. Regression

The correct answer is: Contribution

The $5,000 gained in value is less than the $10,000 spent, indicating that the bathroom renovation did not provide as much value as the cost invested. This concept is known as contribution, and it highlights the idea that not all improvements necessarily add equal value to a property. Option A, diminishing returns, does not accurately reflect the discrepancy between the cost and value gained. Option C, substitution, refers to choosing a lower cost alternative, which is not applicable in this scenario. Option D, regression, is a statistical term that does not apply to this principle.