Question

A home owner is deciding whether to do a major improvement to her home. The primary consideration is whether her home will increase in value to cover the cost of the improvement. Her concerns are based on her knowledge of the principle of___________

Answer 1

The homeowner's primary concern is the principle of return on investment (ROI), assessing if home improvements will increase the home's value versus cost. Home equity, representing a homeowner's financial stake, influences this decision, as does the theory of rational expectations regarding property value appreciation due to anticipated neighborhood improvements.

Step-by-step explanation:

The homeowner's concerns are based on her knowledge of the principle of return on investment (ROI). When a homeowner considers making improvements, they typically assess whether these improvements will increase the value of the home sufficiently to cover the costs and potentially provide additional financial benefit. The concept of home equity is crucial in this decision-making process. It represents the difference between the market value of the home and any outstanding loans. As homeowners build equity in their home through improvements and mortgage payments, they strengthen their financial position. Additionally, the theory of rational expectations suggests that home prices may rise based on the anticipated future benefits of improvements, such as local parks or libraries.