Property Valuation
The principle of substitution states that:
AA property's value is enhanced by its surroundings
BA buyer will pay no more for a property than the cost of acquiring a comparable substitute✓ Correct
CThe value of land is separate from the value of improvements
DProperty values increase when demand exceeds supply
Explanation
The principle of substitution is the foundation of the sales comparison approach: a rational buyer will pay no more for a property than the cost of purchasing an equally desirable substitute. This sets the ceiling on value.
Related California Property Valuation Questions
- What is a 'land residual' in real estate investment analysis?
- The principle of substitution states that:
- Which type of depreciation results from factors outside the property, such as proximity to a freeway or an industrial plant?
- What is the purpose of a Comparative Market Analysis (CMA) as used by real estate agents?
- The principle of progression states that:
- The Gross Rent Multiplier (GRM) is calculated by:
- Functional obsolescence differs from physical deterioration in that it results from:
- A seller has a home with market value of $750,000. The seller wants to net $700,000 after paying a 6% commission. Can the seller achieve this by listing at $750,000?
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