What is the principle of 'substitution' in real estate appraisal?
Why A buyer will pay no more for a property than the cost of acquiring an equally desirable substitute Is Correct
Answer B: A buyer will pay no more for a property than the cost of acquiring an equally desirable substitute
Exam Tip: Property Valuation
Valuation questions focus on the three approaches to value: sales comparison, cost, and income. Know which approach is best for which property type. The income approach uses cap rate and NOI — memorize these formulas.
Key Property Valuation Terms in This Question
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Key Terms to Know
A professional estimate of a property's market value prepared by a licensed or certified appraiser.
Comparable Sales (Comps)Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Deed of TrustA security instrument used in many states instead of a mortgage, involving three parties: borrower (trustor), lender (beneficiary), and a neutral trustee.
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