The principle of substitution in real estate appraisal states that:
Correct Answer
A) A buyer will pay no more for a property than the cost of an equally desirable substitute
The principle of substitution holds that a prudent buyer will pay no more for a property than the cost of acquiring an equally desirable and functional substitute property. This principle is the foundation of the sales comparison approach and the cost approach to appraisal, as it assumes buyers will choose the least expensive option among comparable alternatives.
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Related Concepts
The comparable sales approach estimates a property's value by comparing it to similar properties that have recently sold in the same market area. It is the most widely used and reliable approach for appraising residential properties.
The cost approach estimates a property's value by calculating the current cost to rebuild the improvements, subtracting accumulated depreciation, and adding the land value. It is most reliable for new construction and special-purpose properties.
Depreciation is an accounting method of allocating the cost of an asset over its useful life, allowing investors to deduct a portion of the asset's cost each year.
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- → The income approach to appraisal is most commonly used for which type of property?
- → External obsolescence in Oklahoma:
- → Which of the following correctly lists the three types of depreciation recognized in real estate appraisal?
- → The sales comparison approach to appraisal is most appropriate for which type of property?
- → Which formula correctly calculates the capitalization rate?
- → The sales comparison approach to appraisal is most commonly used for which type of property?
- → Which four tests must a use satisfy to qualify as the highest and best use of a property?
- → Three depreciation:
- → Cap rate:
- → A Comparative Market Analysis (CMA) is best described as which of the following?
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