What basic principle of value states that a property's maximum value tends to be set by the cost of acquiring an equally desirable property?

• A. Progression
• B. Substitution
• C. Regression
• D. Conformity

Answer: (B)

Substitution is the basic principle at work here: a property's maximum value is limited by the cost of acquiring an equally desirable property. Buyers compare options, and if they can purchase a replacement with similar utility for less, they won’t pay more for the subject property. This creates a ceiling for value because the market wouldn’t support paying more for something if a comparable substitute exists at a lower price.

To see how this fits with appraisal, imagine a buyer weighing two homes with similar features and usefulness. If one home could be bought for a lower price, the other would have to justify its higher price with something beyond substitutes—otherwise demand would shift to the cheaper option.

Other principles describe different dynamics: progression and regression explain how values are influenced by neighboring property values—good properties pulling others up, or poor ones dragging good ones down—while conformity says values tend to move toward the neighborhood average. But the maximum value is dictated by the price of a comparable substitute, which is why substitution is the correct concept.