A buyer refuses to pay $520,000 for a house when an equivalent one nearby is listed at $495,000. Which principle is at work?
Correct Answer
B) Substitution among equivalent properties
Why this is correct: The principle of substitution states a buyer will not pay more for a property than the cost of acquiring a similar, equally desirable substitute. Here, the $495,000 listing is the substitute, setting a price ceiling and making the $520,000 ask unreasonable. Why the other choices are wrong: "Anticipation of future benefits" is incorrect; this deals with expected future value, not current price competition. "Conformity within the neighborhood" is wrong; this principle concerns value protection from similarity, not direct price comparison. "The contribution of its individual features" is incorrect; this measures a feature's value contribution, not the buyer's choice between properties. Exam tip: Substitution is the core market discipline. Always ask: "What's the cost of a comparable alternative?"
Why This Is the Correct Answer
Why this is correct: The principle of substitution states a buyer will not pay more for a property than the cost of acquiring a similar, equally desirable substitute. Here, the $495,000 listing is the substitute, setting a price ceiling and making the $520,000 ask unreasonable. Why the other choices are wrong: "Anticipation of future benefits" is incorrect; this deals with expected future value, not current price competition. "Conformity within the neighborhood" is wrong; this principle concerns value protection from similarity, not direct price comparison. "The contribution of its individual features" is incorrect; this measures a feature's value contribution, not the buyer's choice between properties. Exam tip: Substitution is the core market discipline. Always ask: "What's the cost of a comparable alternative?"
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