Anticipation

The principle of Anticipation states that the current value of a property is the present value of future benefits.

 

Although a homebuyer anticipates future benefits, they are largely immeasurable.  Anticipation is most closely associated with the purchase of investment properties.  When Investment property is purchased, the buyer is actually purchasing an Annuity (a series of periodic payments) and a Reversion (the value of the property at the end of the anticipated Holding Period.)

 

•When real estate is purchased, the benefits are over a long period of time.  Anticipation is the present value of those benefits.

 

•A homebuyer anticipates use of the home over years of times.  He envisions raising a family, appreciation, mortgage free living, etc.  The price paid now is the value of these (and other) long-term benefits from home ownership.

 

•Anticipation is more closely associated with investors because it is more easily measurable.  Investors anticipate periodic cash receipts over a period of time and the hope of resale at an appreciated value.

 

The current value of the property is the present value of an annuity (periodic income) plus the present value of the lump sum (reversion) at the time the property is sold.

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