What economic principle serves as the foundation for the adjustment process in the market approach?

The principle that serves as the foundation for the adjustment process in the market approach is the Principle of Substitution. This principle asserts that a buyer will not pay more for a property than the cost of acquiring a comparable substitute. In essence, when assessing a property through the market approach, appraisers look for comparable properties that have recently sold, adjusting the value based on differences in features, location, and other relevant factors.

The principle of substitution is critical as it directly influences the way adjustments are made. When an appraiser identifies discrepancies between the subject property and comparables, they adjust the value based on what a buyer would reasonably pay for a property with similar utility, thus ensuring that the valuation reflects a competitive and fair market price.

While the principle of contribution evaluates how much specific features or improvements contribute to the value of a property, it does not primarily dictate the adjustment process in the market approach. The principle of anticipation focuses on future benefits and might be relevant in different types of analyses but does not specifically inform the adjustment of comparable sales. The principle of supply and demand relates to market conditions and pricing trends but is more about the overall market context rather than the specific adjustments necessary in the comparative market analysis.