California Real Estate SalespersonProperty Valuation and Financial AnalysisMedium
A developer is planning to construct a new mixed-use building on a downtown parcel. The parcel is currently zoned for residential use, but a recent zoning change proposal, expected to pass, would allow for commercial and multi-family development, which would yield a significantly higher return. Which appraisal principle would guide the appraiser's valuation of this parcel?
- APrinciple of Contribution
- BPrinciple of Regression
- CPrinciple of Anticipation
- DPrinciple of Conformity
Show answer & explanationAnswer & explanation
Correct answer: C. Principle of Anticipation
The Principle of Anticipation states that value is created by the expectation of future benefits or detriments. In this scenario, the expected future zoning change and higher returns significantly influence the current value of the parcel.
Why the other options are wrong
- A. The Principle of Contribution relates to the value an improvement adds to the whole property.
- B. The Principle of Regression describes how a higher-valued property is negatively affected by lesser-valued properties.
- D. The Principle of Conformity suggests that maximum value is realized when a property is in harmony with its surroundings.
Principle of Anticipation
Value is created by the expectation of future benefits to be derived from the property.
- Future income, appreciation, or utility drives current value
- Often applied in income-producing properties
- Accounts for potential changes in zoning or market conditions
Memory trick: Anticipate Future Benefits for Current Value