Humber/Ontario Real Estate Course 4 Exam Practice

A small outdated house located near a luxury home could:

1. Lower the market value of the luxury home

2. Increase the luxury home's value

3. Have no impact on market value

4. Be considered a historical asset

5. Serve as a renovation investment

6. Attract potential buyers

The correct answer is: Lower the market value of the luxury home

The reasoning behind selecting the option that a small outdated house located near a luxury home could lower the market value of the luxury home lies in the dynamics of property comparisons and neighborhood composition. In real estate, the concept of "comps" (comparable properties) plays a critical role in determining market values. When a luxury home is situated near a less desirable property, such as a small, outdated house, it can create a negative impact on perceived value. Buyers often consider the surrounding properties when evaluating a home's worth. If potential buyers view the neighboring outdated house as a detriment—citing concerns over aesthetics, maintenance, or overall desirability—they may offer less for the luxury home, leading to an overall decrease in its market value. Additionally, appraisers and real estate professionals take into account the environment and neighborhood when assessing property value. The presence of a less appealing home can set a lower baseline for property values in the area, which may influence the luxury home's market price downward. The other choices present situations that are less likely to happen or are less relevant in this context. For example, increasing the luxury home's value is generally unlikely in the presence of a less desirable property, as is the idea that it might serve as a renovation investment for