Florida Real Estate Broker ExaminationValuation and Market AnalysisMedium
A homeowner has commissioned an appraisal for their property, which is located directly adjacent to a recently approved municipal wastewater treatment plant. Although the plant is not yet operational, its future presence is expected to negatively impact property values in the immediate vicinity due to potential odors and noise. This anticipated loss in value is best described as which principle of value?
- APrinciple of Anticipation
- BPrinciple of Contribution
- CPrinciple of Conformity
- DPrinciple of Substitution
Show answer & explanationAnswer & explanation
Correct answer: A. Principle of Anticipation
The Principle of Anticipation states that value is created by the expectation of future benefits or detriments. In this case, the negative impact on value is due to the anticipation of future odors and noise from the plant.
Why the other options are wrong
- B. Contribution relates to the value added by individual property components, not external future events.
- C. Conformity suggests that maximum value is realized when a property conforms to its surroundings.
- D. Substitution states that a buyer will pay no more than the cost of acquiring an equally desirable substitute property.
Principle of Anticipation
The principle of value that states value is created by the expectation of future benefits or detriments of ownership.
- Future events impact current value
- Can be positive (e.g., future development) or negative (e.g., environmental impact)
- Fundamental to income capitalization approach
Memory trick: Anticipate what's coming, good or bad, to gauge the value.