Principle of Substitution

Definition: The principle of substitution holds that an informed buyer generally will not pay more for a property than the cost of an equally desirable substitute available without undue delay.

Example

Two homes offer comparable benefits; the less costly alternative helps limit what a buyer will pay for the other.

Keep the distinction clear

The correct word is principle, meaning a rule or concept. The substitute must offer comparable utility, not merely a similar address.

Related terms

Sales Comparison Approach · Replacement Cost · Market Value

Keep studying

Comparable Sales: Adjustments and Weighted Values

References: California DRE: appraisal and valuation concepts

Pronunciation (US): PRIN-suh-puhl uhv sub-stih-TOO-shuhn (capitals show stress)

Pronunciation reference: Merriam-Webster