Under the principle of substitution, what often determines a property's value?

The principle of substitution is a fundamental concept in real estate appraisal, which states that a property's value is influenced by the cost of acquiring a similar property in the same market. This principle suggests that a buyer will not pay more for a property than they would for a comparable property that offers the same utility or satisfaction.

When referring to comparable desirable properties, appraisers look at recent sales of similar properties, adjusting for differences in features and location to estimate fair market value. This approach ensures that property values reflect current market conditions and competitive pricing.

While factors like the age of the property, initial purchase price, and historical value appreciation may play a role in the broader context of real estate, they do not directly dictate value in the same way that the cost of comparable properties does within the framework of the principle of substitution. The focus on current market comparisons underscores the importance of competitive analysis in property valuation, making it clear why the cost of comparable desirable properties is the correct choice in determining a property's value.