What does the principle of substitution state regarding property valuation?

The principle of substitution is a fundamental concept in property valuation that suggests a buyer will not pay more for a property than they would pay for an equally desirable alternative. This means that if a similar property in the same area is available at a lower price, a rational buyer would likely choose the less expensive option rather than paying more for a comparable property. This principle is based on the assumption of competition among properties and the tendency of market forces to regulate the pricing of real estate.

This rationale helps appraisers and real estate professionals assess property value by comparing it to similar properties, ensuring that valuations are in line with market expectations. Using this principle is essential because it reflects the competitive nature of the real estate market, where buyers are driven by the best value for their investment.