Question

The Principal of Substitution, which states that no one will pay more for one item if an equally substitutable item is available at a lower price, applies to what appraisal methods?1. Market data only2. Sales Comparison, replacement cost, and income3. Income only4. Replacement cost and market data only

Answer 1

Answer:

Sales Comparison, replacement cost, and income

Explanation:

The Principle of Substitution is a concept under real estate value appraisal that is the basis for the Sales Comparison, replacement cost, and income approach to appraisal. It is used to determine the best choice of property considering utility and price of all alternatives. The principle is applied to the following methods:

The cost approach - here the buyer can choose to build his home for less cost than an existing property cost since it would serve him same utility.

2. The sales comparison approach - here properties of competitive utility are considered and property with lowest price us chosen

3. The income capitalization approach - here tenant rents property with lowest rent but with Same utility to competition.