Principle of substitution meaning

The market approach to valuation is most closely linked to which principle:

  1.  Principle of supply and demand
  2.  Principle of conformity
  3.  Principle of substitution
  4.  Principle of highest and best use

The answer is C. The principle of substitution states that the value of a property tends to be influenced by the price of acquiring an equally desirable substitute property.  In the market approach to valuation, other properties that have recently sold are compared to in order to find the right price for the subject property – this is very closely linked to the principle of substitution.