What does the principle of substitution state regarding property value?

The principle of substitution asserts that a buyer will not pay more for a property than the cost to acquire an equivalent property with the same utility or value. This principle effectively means that if a buyer is considering purchasing a property, they will look at what the market bears and will not be willing to pay more than what they could pay to build or purchase a similar property that meets their needs in terms of location, size, features, and other relevant characteristics.

This principle is foundational in real estate valuation because it reflects a rational economic behavior where prices are constrained by the availability of comparable properties. If similar properties are available for a lower price, buyers will opt for those alternatives rather than overpay for a particular property.

The other options do not encapsulate the essence of the principle of substitution as accurately. For instance, the assessed tax value and the seller's original purchase price can vary significantly based on a variety of factors and do not directly relate to the concept of what a buyer perceives as a fair price based on alternatives available in the market. Moreover, the cost of land plus improvements refers to a specific valuation approach rather than the broader principle that directly informs a buyer's expectations based on substitution.