Property Valuation
What is the 'principle of substitution' in real estate appraisal?
AThe principle that one appraisal can substitute for another
BThe principle that a buyer will pay no more for a property than the cost of acquiring an equally desirable substitute — the foundation of the sales comparison and cost approaches✓ Correct
CThe principle allowing an appraiser to substitute one comparable for another
DA Nevada principle requiring appraisers to use only Nevada comparables
Explanation
The principle of substitution is fundamental to appraisal theory: a rational buyer will not pay more for a property when an equally desirable substitute is available at a lower price. This supports the sales comparison approach (buyers can choose among available homes) and the cost approach (why pay more for an existing building than it would cost to build a new one). In Nevada's active housing market, this principle guides buyers to make rational value assessments.
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