Property Valuation
The principle of substitution states that a buyer will pay no more for a property than the cost of acquiring an equally desirable substitute. This principle:
AOnly applies to the income approach
BUnderpins all three approaches to value — cost, sales comparison, and income✓ Correct
COnly applies in a buyer's market
DIs relevant only for commercial properties
Explanation
The principle of substitution is a foundational principle of real estate valuation that underlies all three appraisal approaches. In the cost approach, a buyer won't pay more than to build a substitute. In sales comparison, a buyer won't pay more than a similar sale. In income approach, a buyer won't pay more than for a substitute income stream.
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