Real Estate Appraisal Practice Exam 2026 - Free Appraisal Practice Questions and Study Guide

The principle of substitution is a fundamental concept in real estate appraisal, particularly within the cost approach. This principle asserts that a rational buyer will not pay more for a property than the cost of obtaining an equally desirable substitute. Essentially, if two properties are similar in quality, size, utility, and desirability, the value of one property is influenced by the price of the other.

This principle helps appraisers determine property value by considering what it would cost to buy a comparable property. If a buyer can acquire a similar property at a lower price, they will not pay a premium for the one being appraised. Hence, this reinforces the importance of market conditions and comparable sales in establishing value.

Other options, while related to buyer behavior or factors affecting property value, do not directly encapsulate the essence of the principle of substitution as it pertains to cost and value assessment in real estate. The focus on equally desirable substitutes is what makes this particular option the correct interpretation of the principle.