The concept of substitution sets an upper limit on value because a buyer:
Correct Answer
A) Will not pay more than an equally desirable alternative costs
Why this is correct: The principle of substitution states that a rational buyer will not pay more for a property than the cost of acquiring an equally desirable substitute property. This sets the upper limit of value. Why the other choices are wrong: A buyer is not forced to choose the least expensive option. Financing constraints are a market factor but not the definition of the principle. There is no legal prohibition against overpaying. Exam tip: Substitution is the foundational principle behind all three approaches to value.
Why This Is the Correct Answer
Why this is correct: The principle of substitution states that a rational buyer will not pay more for a property than the cost of acquiring an equally desirable substitute property. This sets the upper limit of value. Why the other choices are wrong: A buyer is not forced to choose the least expensive option. Financing constraints are a market factor but not the definition of the principle. There is no legal prohibition against overpaying. Exam tip: Substitution is the foundational principle behind all three approaches to value.
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