Bernard bought the classic 'worst house on the best block.' Every home around his is bigger, newer, and worth more. This makes the value of his home higher than it would be otherwise. What principle of value is at work here?

The principle of regression indicates that a higher-value property can lose value when located in a neighborhood with lower-value properties. In this case, it does not apply because Bernard's home is not surrounded by lower-value homes; rather, it is surrounded by more valuable ones, which enhances its value instead.

This principle refers to the value added to a property by a specific improvement. While improvements may increase a property's value, they are not relevant in this scenario where the surrounding properties' values are the primary influence on Bernard's home's worth. His home’s value is not being enhanced by any particular feature or improvement.

The principle of substitution states that a property’s value is determined by the cost of acquiring a similar substitute in the same market. This principle does not apply to Bernard's situation because it does not address how the surrounding homes influence the value of his property directly; rather, it focuses on market comparisons.