The principle of substitution is the foundation of which appraisal method?

The principle of substitution states that a buyer will not pay more for a property than what it would cost to acquire an equally desirable substitute property. This principle is fundamental to the comparable sales approach in real estate appraisal, as this method involves analyzing the sale prices of similar properties in the same area to determine the market value of a subject property. By comparing similar properties that have recently sold, appraisers utilize the principle of substitution to establish a value that reflects current market trends and buyer behavior.

The comparable sales approach directly relies on the idea that if a property can be replaced by another of similar quality, then the market should dictate that those properties have comparable values. Hence, this method effectively illustrates how the principle of substitution is applied in practice.