What principle suggests that an informed buyer will not pay more for a property than the cost of acquiring a similar property?

The principle that indicates an informed buyer will not pay more for a property than the cost of acquiring a similar property is known as substitution. This principle is foundational in real estate valuation and investment. It asserts that a buyer will consider alternatives and will choose the most economical option that meets their needs.

For instance, if two properties are comparable in size, location, and amenities, the buyer will be unlikely to pay a premium for one property when they can obtain a similar property for less. This principle plays a crucial role in the appraisal process, as appraisers often compare similar properties in terms of price to determine the market value of a subject property.

Understanding the principle of substitution helps buyers make informed decisions and encourages sellers to price their property competitively to attract potential buyers within the market.