32. Investor Rory pays slightly more than an apartment building is currently worth because she heard some intel that the university is opening a new campus a few blocks away. What principle of value is relevant to Rory's situation?
Answer: A
Principle of anticipation is relevant to Rory's situation.
Rory's decision to pay more than the current worth of the apartment building is based on the expectation of future benefits due to the new university campus nearby. This reflects the principle of anticipation, where value is influenced by future events that are expected to enhance property worth.
A) principle of anticipation
This option is correct because it directly relates to Rory’s expectation that the opening of a new campus will increase the demand for housing, thereby enhancing the property’s value in the future. The principle of anticipation suggests that the present value of property is affected by the anticipated future benefits, which is exactly what Rory is considering.
B) principle of regression
This option is incorrect as the principle of regression refers to the decrease in the value of a property due to surrounding properties of lesser value. In Rory's case, she is not concerned about a decrease in value but rather an increase due to the anticipated university campus, making this principle irrelevant.
C) principle of substitution
This option is also incorrect. The principle of substitution states that a buyer will not pay more for a property than the cost of acquiring an equally desirable substitute. Rory's willingness to pay more is based on future value rather than the presence of alternative properties, indicating that this principle does not apply here.
D) principle of contribution
This option is incorrect as well. The principle of contribution pertains to the value added by a particular feature or improvement in a property. Rory's decision is not about an improvement to the building itself but rather about expected future demand resulting from external factors, making this principle not applicable.
Conclusion
The principle of anticipation is the definitive answer as it captures Rory's rationale for paying more based on expected future benefits from the new university campus. The other options fail to address the forward-looking nature of her investment decision, focusing instead on concepts that do not align with her situation. This highlights the importance of understanding how anticipated future developments can influence current property values.