A cap rate in its simplest form is a return on your investment based on the principle of anticipation. Value is the present worth of future benefits.
Failure to consider the likely future income of the property (year one pro forma) does not follow the principle of anticipation. Extracting a cap rate from market data using historical income and applying it to the year one projection of the property being valued will result in an incorrect value opinion.
ANTICIPATION: The building blocks of a successful negotiation ultimately come down to the principle of anticipation
. In theory, if the broker has complete knowledge of the motivations and means of both parties to the transaction, understands the real estate thoroughly and can foresee the legal issues which will come to the fore, as well as anticipate the availability of competing properties; then the negotiation will be perfect and if there is a deal to be made it will be consummated.
Concerning Heading 5 (administration), there should not be any major problems given the agreement reached on the principle of anticipation
of 2003 expenditure thanks to under-implemented appropriations in 2002 (frontloading) on the basis of the Supplementary and Amending Budget (SAB 6/2002) presented by the Commission.
An example of a reasoning process in appraisal with an adequate principle is income analysis, in which the principle of anticipation (i.e., value is created by the expectation of future benefits) fundamentally premises the analytic means (i.e., an income capitalization or discounted cash flow model of future revenues), so that one may conclude, or estimate, a valid end (i.e., a value estimate).
The foundations of appraisal include three other principles: the principle of anticipation, the principle of change, and the principle of conformity.(16) These are unrelated enough that they do not require quotation and analysis here.
This approach is logically valid in the praxeology of appraisal because it is fundamentally premised on the principle of anticipation, which states that individuals price real estate consistent with the present worth of future net benefits.
Likewise, individuals do not always: (a) set price exactly equal to the purchase prices of properties with equal utility, as in the principle of substitution, and (b) individuals do not always set price exactly equal to the present worth of anticipated future benefits, as in the principle of anticipation. Pricing choices by individuals do, however, tend to be determined by the principle of production when production of a similar alternative property is feasible to consider, just as they tend to be determined by principles of substitution and anticipation, when substitution of comparable sale prices and/or anticipation of future benefits (e.g., capitalized net income) are feasible to consider.