What Is Principle of Contribution?
The principle of contribution holds that the value of any single component or improvement to a property equals the amount it adds to the total property value — not what it cost to install.
Example
A $60,000 swimming pool might contribute only $20,000 to a home's resale value in a market where pools aren't in high demand.
Why It Matters
This is the underlying reason renovations rarely recover 100% of their cost — it's the same principle behind cost recovery, superadequacy, and over-improving.