What does the principle of substitution imply regarding property pricing?

What does the principle of substitution imply regarding property pricing?

• A. One will pay more for a unique property
• B. A person will not pay more than for an equal property
• C. All properties are worth the same
• D. Cost is irrelevant in property value

Answer: (B)

The principle of substitution is a foundational concept in real estate valuation that indicates a buyer will not pay more for a property than the cost of acquiring a comparable alternative. This means that if two properties have similar features, locations, and benefits, a buyer is unlikely to pay a premium for one over the other. Essentially, if a property is priced significantly higher than its alternatives, buyers will opt for those alternatives, thereby influencing the market value. This principle emphasizes the relationship between the prices of similar properties, underlining that market value is largely determined by what a buyer considers to be fair based on the characteristics and qualities of comparable properties available in the market. In essence, it reflects the idea of market equilibrium, where prices stabilize according to supply and demand within similar property segments.

The principle of substitution is a foundational concept in real estate valuation that indicates a buyer will not pay more for a property than the cost of acquiring a comparable alternative. This means that if two properties have similar features, locations, and benefits, a buyer is unlikely to pay a premium for one over the other. Essentially, if a property is priced significantly higher than its alternatives, buyers will opt for those alternatives, thereby influencing the market value.

This principle emphasizes the relationship between the prices of similar properties, underlining that market value is largely determined by what a buyer considers to be fair based on the characteristics and qualities of comparable properties available in the market. In essence, it reflects the idea of market equilibrium, where prices stabilize according to supply and demand within similar property segments.