The appraisal principle of substitution states that a buyer will pay no more for a property than the cost of acquiring an equally desirable substitute. Which of the following best reflects this principle?
Correct Answer
A) A buyer will not pay more for a property than the cost of a comparable substitute property
The principle of substitution holds that a rational, informed buyer will pay no more for a property than the cost of acquiring a comparable substitute with the same utility and desirability. This principle is the foundation of the sales comparison approach to appraisal, as it explains why comparable sales set the upper limit of value for a subject property. It also underlies the cost approach, since a buyer would not pay more for an existing property than the cost to build an equivalent one.
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