California Real Estate Broker ExaminationValuation and AppraisalEasy
An appraiser is evaluating a property and observes that a significant portion of its value is derived from its potential future income, rather than its current use or replacement cost. Which principle of value is most directly at play in this scenario?
- APrinciple of Anticipation
- BPrinciple of Conformity
- CPrinciple of Contribution
- DPrinciple of Substitution
Show answer & explanationAnswer & explanation
Correct answer: A. Principle of Anticipation
The Principle of Anticipation states that the value of property is created by the expectation of future benefits, such as income or appreciation. This directly aligns with the scenario where future income potential drives value.
Why the other options are wrong
- B. The Principle of Conformity suggests value is maximized when properties are similar in character.
- C. The Principle of Contribution relates to the value an improvement adds to the whole property.
- D. The Principle of Substitution states that a buyer will pay no more for a property than the cost of an equally desirable substitute.
Principle of Anticipation
The principle of anticipation states that the value of property is created by the expectation of future benefits, such as income, appreciation, or amenities.
- Value is based on future expectations.
- Applies to income-producing properties and potential appreciation.
- Fundamental to the income approach to valuation.
Memory trick: Future benefits are anticipated, bringing value.