Contribution

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The economic principle of Contribution states that, regardless of its cost, the value of a component is equal to the amount that the component adds to the value of the property.

 

An improvement to property is worth only as much as it adds to value.  The cost of the improvement is not a consideration

Contribution is the incremental value to real estate by construction of an improvement. Contribution is not the same as cost.

 

An appraiser must consider only the contribution of an improvement, not its cost.

 

Contribution is synonymous with marginal productivity.

 

Example:  The owner of a house finishes the basement.  As a result of the basement finish, the value of the house increases by $5,000.  The contribution of the finished basement is $5,000.  The cost of the basement is irrelevant.  If the basement finish cost $20,000, the contribution is $5,000.  If the basement cost $3,000, the contribution is $5,000.

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