Property Valuation
The principle of substitution in real estate appraisal holds that:
AA property's value is determined by the income it could generate
BA prudent buyer will pay no more for a property than the cost of acquiring an equally desirable substitute✓ Correct
CProperty values in a neighborhood tend toward conformity
DValue is created by the anticipation of future benefits
Explanation
The principle of substitution is the foundation of the sales comparison approach: a rational buyer will not pay more for a property than what it would cost to acquire an equally desirable substitute property. This principle underpins all three approaches to value — cost approach (substitute new construction), sales comparison (substitute comparable sales), and income approach (substitute comparable investments).
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