California Real Estate Broker ExaminationValuation and AppraisalMedium
A buyer is interested in a vacant lot that is currently zoned for residential use but is located in an area where the city council is actively discussing re-zoning for commercial development. The buyer believes this re-zoning will significantly increase the property's value. This belief aligns with which principle of value?
- APrinciple of Conformity
- BPrinciple of Substitution
- CPrinciple of Anticipation
- DPrinciple of Contribution
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 to be derived from the property. The buyer's belief that future re-zoning will increase value directly reflects this principle.
Why the other options are wrong
- A. The Principle of Conformity states that maximum value is realized when a property is in harmony with its surroundings.
- B. The Principle of Substitution states that the maximum value of a property tends to be set by the cost of acquiring an equally desirable substitute property.
- D. The Principle of Contribution states that the value of an improvement is measured by its contribution to the total value of the property, not by its cost.
Principle of Anticipation
The Principle of Anticipation states that the value of a property is created by the expectation of future benefits, such as income, appreciation, or amenities.
- Future benefits drive present value.
- Applies to income-producing properties and potential development.
- Expectations can be positive or negative.
Memory trick: Value Principles: How properties GET their worth.