Certified Pennsylvania Evaluator Practice Exam

Which principle is most closely related to the Sale Comparison Approach?

1. The Principle of Change

2. The Principle of Regression

3. The Principle of Substitution

4. The Principle of Anticipation

The correct answer is: The Principle of Substitution

The principle most closely related to the Sale Comparison Approach is the Principle of Substitution. This principle posits that a buyer will not pay more for a property than the cost of acquiring an equally desirable substitute property. Essentially, it informs the appraiser that the value of a property is influenced by the prices of similar properties that have recently sold in the market. In applying the Sale Comparison Approach, appraisers assess the sales prices of comparable properties, making adjustments for differences, to estimate the value of the subject property. By relying on the Principle of Substitution, appraisers ensure that the market value they determine is reflective of current market conditions and what buyers would realistically be willing to pay, thereby providing a reliable estimate of value. The Sale Comparison Approach hinges on the market behavior of buyers and sellers, where the concept of substitution guides the valuation process based on available alternatives in the real estate market. This principle is foundational to understanding how market forces influence property values.