What is the basic valuation principle underlying the direct comparison approach?

What is the basic valuation principle underlying the direct comparison approach?

• A. The principle of substitution
• B. The principle of conformity
• C. The principle of anticipation
• D. The principle of contribution

Answer: (A)

The principle of substitution is the foundation of the direct comparison approach. It states that a property's value is determined by the price a buyer would pay for a similar substitute property. Since buyers can choose among comparable properties, they won’t pay more for the subject property than for a close substitute, all else being equal. In practice, appraisers identify similar properties that recently sold or are listed and adjust for differences (location, size, condition, features) to reflect the subject’s value. This approach relies on people choosing the best available substitute, so the value moves toward the price of those substitutes. The other principles relate to different concepts: conformity deals with how value is influenced by surrounding properties, anticipation with expected future benefits, and contribution with how much an improvement adds to overall value.

The principle of substitution is the foundation of the direct comparison approach. It states that a property's value is determined by the price a buyer would pay for a similar substitute property. Since buyers can choose among comparable properties, they won’t pay more for the subject property than for a close substitute, all else being equal. In practice, appraisers identify similar properties that recently sold or are listed and adjust for differences (location, size, condition, features) to reflect the subject’s value. This approach relies on people choosing the best available substitute, so the value moves toward the price of those substitutes. The other principles relate to different concepts: conformity deals with how value is influenced by surrounding properties, anticipation with expected future benefits, and contribution with how much an improvement adds to overall value.