Property Valuation

What is the 'principle of substitution' in real estate appraisal?

AThe principle that appraisers can substitute comparable sales from other markets

BThe principle that a rational buyer will pay no more for a property than the cost to acquire an equally desirable substitute property✓ Correct

CThe principle of replacing depreciated components at current costs

DThe principle that one appraisal method can substitute for another

Explanation

The principle of substitution holds that a rational buyer will not pay more for a property than the price of an equally desirable and available substitute. This principle is the foundation of all three appraisal approaches: the sales comparison approach compares to substitute properties; the cost approach considers the cost to build a substitute; the income approach measures competitive yields.