What principle states that no one would pay more for a property than the necessary cost for an acceptable substitute?

The principle that asserts no one would pay more for a property than the necessary cost for an acceptable substitute is known as the principle of substitution. This principle is foundational in real estate appraisal and market analysis; it emphasizes that a buyer will only pay a price that is commensurate with the cost required to acquire an equally desirable property in a similar location and condition.

For instance, if two similar properties are available and one is priced significantly higher than the other without justifying factors like a unique feature or advantage, buyers are likely to choose the less expensive option as that represents better value for their money. This behavior in the market demonstrates the principle of substitution, making it essential for appraisers and real estate professionals when evaluating market value.

The other principles mentioned serve different purposes in valuation or real estate analysis: the principle of balance relates to the effects of property use on property value, the principle of contribution focuses on the added value of an improvement in relation to its cost, and the principle of highest and best use involves identifying the most profitable use of a property. Each of these principles plays a distinct role in the evaluation and determination of property values, but in the context of determining the maximum price a buyer would pay, the principle of substitution is the most relevant