Principle of Substitution

Principle of Substitution Definition

The Principle of Substitution means that a purchaser will not pay more for a property than they would be able to pay for a similar property of a lower price and of equal quality.

Explanation

The principal of substitution exists in real estate to bring attention to appropriate property pricing guidelines. This principle is heavily predicated on comparable properties and takes the idea of comparables being important to pricing.

The crux of the principle of substitution is that a property buyer will not pay more for a property if there is a cheaper property on the market that would also suit their needs and purposes. A higher price should be always justified by a significant advantage offered by a more expensive property in comparison to a cheaper property.

 

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