The principle of substitution in real estate states that the value of a property is determined by what factor?

The principle of substitution is a key concept in real estate appraisal that states that the value of a property is determined by the cost to purchase a similar property that provides equivalent utility. This means that when determining the value, appraisers will compare the subject property with comparable properties in the market. If a buyer can find a similar property for a lower price, they would not pay more for the subject property. Thus, the most influential factor in establishing the value is indeed the cost of purchasing a similar property.

This principle underscores the importance of market comparisons in determining value, and it reflects the idea that a buyer will not pay more for a property than they would have to pay for an equally desirable alternative. In real estate valuation, this principle helps establish a baseline for market value based on what is available in the marketplace.

Other options, such as the cost of property management, economic conditions, and the age of the property, may influence a property's value but do not directly define it through the lens of substitution. For example, while economic conditions can affect overall market demand and influence prices, they do not directly correlate to the concept of valuing a property based on what an analogous property would cost. Similarly, the age of a property might impact its condition or