Which principle suggests that no informed purchaser would pay more for a property than the cost of a substitute property?

The principle that suggests no informed purchaser would pay more for a property than the cost of a substitute property is known as the principle of substitution. This principle argues that a buyer will not pay a premium for a property if a similar property is available at a lower price, thereby asserting that the value of a property is influenced by the cost of acquiring a comparable substitute. Essentially, it acts as a safeguard for the market by preventing prices from rising significantly above what can be obtained from similar properties in the vicinity.

In the context of property valuation, this principle helps appraisers determine the market value by considering the cost of similar properties that fulfill the same need or demand. If two properties are identical in purpose and function, the value is capped at the lower cost of these alternatives, ensuring that buyer behavior aligns with market dynamics. Thus, this principle underpins many valuation methodologies and is fundamental to real estate economics.