According to the principle of substitution, what is the highest price a buyer would consider for a property?

The principle of substitution suggests that a buyer will not pay more for a property than it would cost to purchase an equally desirable property with similar utility and characteristics. In this context, the highest price a buyer would consider for a property is the replacement cost of a similar property. This is because a buyer evaluates their options based on what they could acquire that provides the same value or benefits.

When the replacement cost is used for comparison, it reflects the current market conditions and the costs to develop a similar property rather than relying on outdated values or irrelevant information. The goal is to ensure that the buyer is making a financially sound decision that aligns with the overall principle of maximizing value.

The other options do not represent the immediate decision-making process for setting a maximum price based on the principle of substitution. For example, the assessed tax value of a property may be significantly lower or higher than market value and does not necessarily reflect what a buyer is willing to pay in a competitive market. The cost of improvements made to the land may not correlate with market desirability and utility. Lastly, the original purchase price by the seller is in many cases irrelevant to current market conditions and thus does not represent what a buyer would consider now.