Which concept is illustrated when a buyer compares a property to its closest substitute and weighs that substitute's price?

• A. Scarcity
• B. Supply and Demand
• C. Uniform Residential Appraisal Report
• D. Substitution

Answer: (D)

Substitution is the fundamental idea here: a buyer won’t pay more for a property than the price of an equally desirable substitute. When evaluating value, a buyer compares the subject property to the closest available alternative and weighs that substitute’s price. If a nearby, similar property is priced lower or offers similar features, it caps how high the subject property can reasonably command. Appraisers use this by looking at recent sales of comparable properties to anchor value, adjusting for differences in features to reflect how substitutes affect the subject’s market value.

Scarcity, supply and demand, and the Uniform Residential Appraisal Report describe other concepts or tools, but they don’t capture the this specific behavior of pricing driven by available substitutes.