Florida Real Estate Broker ExaminationValuation and Market AnalysisMedium
A real estate investor is considering a vacant commercial lot. The current zoning allows for a small retail strip center, but a recent rezoning proposal, which is likely to pass, would permit a multi-story mixed-use development. The investor should base their valuation on the potential for the multi-story mixed-use development, even though it's not yet approved. Which appraisal principle supports this approach?
- APrinciple of Contribution
- BPrinciple of Conformity
- CPrinciple of Anticipation
- DPrinciple of Substitution
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. In this scenario, the investor is anticipating the future benefits of a more profitable use (mixed-use development) that is likely to be approved, rather than the current use.
Why the other options are wrong
- A. Contribution relates to how an improvement adds to the overall value of the property.
- B. Conformity relates to properties being similar to others in the area, not future potential.
- D. Substitution suggests a buyer will pay no more than the cost of an equally desirable substitute, which isn't the primary driver here.
Principle of Anticipation
The principle that value is created by the expectation of future benefits to be derived from the property.
- Future income or amenities drive present value.
- Crucial for income-producing properties and development opportunities.
- Underpins the income capitalization approach.
Memory trick: Anticipate the Future, Value the Present!