California Real Estate Practice Exam

Unearned increment is considered in the appraisal of income producing property. What is the best example of unearned increment?

1. Land depreciation

2. Mortgage interest

3. Property maintenance

4. Unanticipated value increase due to circumstantial changes

The correct answer is: Land depreciation

Unearned increment refers to a value increase in property that occurs not because of the owner's actions or investments, but due to external factors or circumstances that enhance the value of the property. The best example of unearned increment from the provided options is the increase in property value that arises from circumstantial changes, such as zoning law modifications, new infrastructure developments, or changes in neighborhood demand. In the context of appraisal for income-producing property, understanding unearned increment is crucial because it reflects potential increases in market value that could affect investment returns, yet are not directly related to the property owner’s management or improvements to the property. Unlike land depreciation, which signifies a decrease in value, or mortgage interest and property maintenance, which are ongoing financial responsibilities, unanticipated value increases due to changes beyond the property owner's control encapsulate the concept of unearned increment perfectly.