Which principle asserts that a property's value is determined by the cost of acquiring a comparable substitute?

Prepare for the Alabama Post-License Salesperson Exam. Utilize flashcards and multiple choice questions with hints and explanations. Ensure your success on the exam day.

The principle of substitution is fundamental in real estate appraisal and value assessment. It states that a property's value is essentially determined by the cost of acquiring a similar, or comparable, property. This concept is based on the idea that buyers won't pay more for a property than they would for another comparable property, assuming that all else is equal.

For example, if two similar houses are located in the same neighborhood but one is priced significantly higher than the other, a buyer is likely to choose the less expensive option, leading to the conclusion that the higher-priced house may need to be adjusted in terms of value—potentially lowered to match the market established by the comparable property.

The other concepts revolve around different aspects of value and market behavior. Objective value relates to the intrinsic worth determined by market conditions and buyer/seller perceptions rather than substitute properties. Conformity deals with the idea that properties achieve maximum value when they are in harmony with their environment and others within the area, while plottage refers to the increase in value resulting from combining multiple properties. Each of these principles serves a different purpose, but it is the principle of substitution that directly addresses how a property's value correlates with the cost of acquiring alternatives in the market.

Subscribe

Get the latest from Examzify

You can unsubscribe at any time. Read our privacy policy