Property Valuation
What is the 'principle of substitution' in real estate appraisal?
AThe principle that properties can be substituted for each other in an investment portfolio
BThe principle that a buyer will not pay more for a property than the cost of acquiring an equally desirable substitute property✓ Correct
CThe principle that an appraiser may substitute one comparable for another of equal quality
DThe principle that land value is always substituted for improved value in appraisal
Explanation
The principle of substitution holds that a rational buyer will not pay more for a property than the cost of acquiring an equally desirable alternative — whether by purchase, construction, or lease. It is the foundation of all three appraisal approaches (sales comparison, cost, and income).
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