What principle suggests that no one would pay more for a property than the cost of an acceptable substitution?

The principle that asserts no one would pay more for a property than the cost of an acceptable substitution is known as the Principle of Substitution. This principle is fundamental in real estate valuation and asserts that a buyer will not pay more for a property than what they could obtain a similar property for at an equal value. It emphasizes that if a property has a similar alternative that fulfills the same need, the value of the original property cannot exceed the price of the alternative without additional value being added, such as location, condition, or unique features.

In the context of real estate, this principle serves as a guiding factor during appraisals. Appraisers use it to determine value by comparing properties on the market and assessing the prices of properties with similar characteristics. This helps ensure that the market reflects realistic pricing based on available comparable properties.

Understanding this principle assists both buyers and sellers in making informed decisions, helping buyers recognize when a property is priced too high compared to its substitutes. It encourages a balanced real estate market where values are aligned with what the property could realistically be replaced with.