Which principle supports the idea that adding a costly improvement may not always increase the property's overall value?

The principle that best supports the idea that adding a costly improvement may not always increase the property's overall value is the law of diminishing returns. This law indicates that beyond a certain point, additional investments in property improvements yield progressively smaller increases in value.

For instance, a homeowner might decide to add a luxurious swimming pool to their property. While the initial investment could be substantial, if the pool does not significantly enhance the appeal or overall value of the home relative to its cost, the homeowner might not recoup that investment upon selling the property. This demonstrates that the initial benefits of improvements do not necessarily continue in a linear manner, especially when the cost of the improvement exceeds what potential buyers are willing to pay for it.

Understanding the law of diminishing returns helps property owners and investors make more informed decisions about property improvements and renovations, ensuring that they do not overspend without justification in potential value increases.