What principle is primarily considered when a homeowner decides on major improvements based on the potential increase in home value?

The principle primarily considered when a homeowner decides on major improvements based on the potential increase in home value is the principle of contribution. This principle asserts that the value added to a property by a particular improvement or feature is determined by how much that improvement enhances the overall value of the property.

In practical terms, a homeowner will assess whether the cost of a proposed improvement will be outweighed by the increase in home value it may produce. For example, if adding a new bathroom costs $20,000, the homeowner will consider whether this addition will likely contribute at least that much (or more) to the home's market value.

The other principles such as the principle of substitution, which indicates that a buyer will not pay more for a property than the cost of obtaining a comparable substitute, and the principle of progression, which deals with the value of a lower-valued property being positively influenced by higher-valued properties in the area, do not directly address the homeowner's calculation on specific improvements in the same way. The law of diminishing returns, while relevant to improvements as well, focuses on how, after a certain point, adding more of a good or service does not increase value in proportion – it does not specifically guide the homeowner in making decisions about improvements.