What economic principle explains why one house is sold for a higher price than a similar house nearby?

The principle that best explains why one house is sold for a higher price than a similar house nearby is progression. Progression refers to the phenomenon where the value of a property is positively influenced by the surrounding properties, particularly when a lesser-valued home benefits from being located near higher-valued homes. In this case, if a house is situated in a neighborhood with more expensive homes, its value can increase as a result of that proximity.

Understanding progression helps you appreciate how location influences property values, particularly in residential markets, where the desirability of a neighborhood can significantly affect prices. This principle is particularly relevant in real estate, where buyers often equate higher prices in the area with higher value for comparable properties.