Which principle suggests that when there is high competition, the value of similar properties may decrease?

The principle that suggests when there is high competition, the value of similar properties may decrease is indeed based on the concept of competition. In real estate, competition among similar properties impacts their value significantly. When multiple properties are available in the same market segment, potential buyers have various options, which can lead to price undercutting as sellers try to attract buyers by lowering their prices. This dynamic creates a scenario where an increase in competing properties lowers the perceived value of each one, as they must compete not just on price, but also on features and desirability. This is particularly evident in saturated markets where there is an oversupply of similar properties, causing prices to stabilize or even decline.

By contrasted principles, substitution refers to the idea that a property’s value is influenced by what buyers would be willing to pay for a similar property, while supply and demand focuses on how the availability of properties and buyer demand interact to shape market prices. Conformity relates to how properties that conform to the standards of their neighborhood will tend to hold their values better, rather than directly addressing competition impact. Thus, in the scenario where competition is high, it is specifically the principle of competition that best articulates the resulting decrease in property values.