When two dwellings have the same use, a perspective purchaser will select which option based on the economic principle of?

The correct choice of substitution reflects a key concept in real estate economics that drives decision-making among prospective buyers. The principle of substitution suggests that when two properties serve the same function and are similar in value and utility, a buyer will typically choose the more cost-effective option.

In practical terms, if two dwellings provide the same level of comfort, amenities, and neighborhood characteristics, a purchaser will likely lean towards the one that offers better value or a lower price. This principle is based on the notion that if one item is essentially fungible with another, the more desirable choice will be the one with a lower price. Thus, a buyer’s preference is significantly influenced by what similar properties are available in the market at any given time.

This economic principle is foundational in real estate as it helps in pricing properties competitively. Understanding the principle of substitution can assist realtors in advising clients about realistic pricing strategies when buying or selling properties, ensuring they make informed decisions based on market conditions.