A homeowner adds a $95,000 kitchen in a neighborhood of $300,000 homes and lists at $420,000. Which principle predicts disappointment?
Correct Answer
B) Substitution, via cheaper equivalent homes nearby
Why this is correct: The principle of substitution states a buyer will pay no more than the cost of an equally desirable substitute. Here, buyers can purchase equivalent homes in a $420k neighborhood, so the over-improved home cannot command a premium. Why the other choices are wrong: Anticipation relates to future benefits, not over-improvement. Change describes market evolution, not this specific pricing issue. Balance concerns the relationship between land and building, not external market alternatives. Exam tip: Over-improvement problems often point to substitution or regression (the flip side of conformity).
Why This Is the Correct Answer
Why this is correct: The principle of substitution states a buyer will pay no more than the cost of an equally desirable substitute. Here, buyers can purchase equivalent homes in a $420k neighborhood, so the over-improved home cannot command a premium. Why the other choices are wrong: Anticipation relates to future benefits, not over-improvement. Change describes market evolution, not this specific pricing issue. Balance concerns the relationship between land and building, not external market alternatives. Exam tip: Over-improvement problems often point to substitution or regression (the flip side of conformity).
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