What economic principle holds that a property's maximum value tends to be set by the cost of acquiring an equally desirable substitute property?

Principle of substitution: A rational buyer will pay no more for a property than the cost of acquiring an equally desirable SUBSTITUTE property. This principle underlies the SALES COMPARISON APPROACH (and influences all three approaches) — if a comparable home is available for less, the buyer won't pay more for the subject.

Other valuation principles:

Contribution: The value of an improvement is measured by its contribution to the whole property's value, not its cost (a $50,000 pool may add only $20,000 to value).

Conformity: Maximum value occurs when properties are similar/conform to the neighborhood.

Anticipation: Value is based on expected future benefits (income, appreciation).

Supply and demand: Value rises when demand exceeds supply.

Highest and best use: The legally permitted, physically possible, financially feasible, and most profitable use; PROGRESSION/REGRESSION (a lesser property gains value near better ones / a better property loses value near lesser ones); the principle of substitution is foundational to appraisal and a key national exam concept — it establishes that comparable alternatives cap what a buyer will pay.