Principle of Regression

The principle of regression is a term used by real estate appraisers stating that the value of high-end real estate may be diminished by having lower-end properties in the same vicinity. This principle is used frequently in writing zoning laws, which strive to keep business and residential areas separate. This principle is often quoted by angry citizens when an undesirable business moves into a nicer part of town. An example is if two homes with basically similar amenities were located across town from one another. The homes may have been purchased for roughly the same amount and be approximately the same age. Through the years, zoning laws allowed a bar and a diesel mechanic to open in close proximity to one of the homes. The home that was in the neighborhood closest to the bar and mechanic may be valued slightly lower due to its location.