Property Valuation
Which principle of appraisal states that value is created by the expectation of future benefits?
APrinciple of anticipation✓ Correct
BPrinciple of substitution
CPrinciple of contribution
DPrinciple of balance
Explanation
The principle of anticipation holds that present value is influenced by the expectation of future benefits. Buyers pay for what they expect the property will provide in the future, not just what it provides today.
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Key Terms to Know
Appraisal
A professional estimate of a property's market value prepared by a licensed or certified appraiser.
Capitalization Rate (Cap Rate)A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
Net Operating Income (NOI)The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
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