Which approach is primarily based on the principle of substitution?

The sales comparison approach is primarily based on the principle of substitution, which states that a buyer will not pay more for a property than the cost of acquiring a comparable substitute property. In this approach, appraisers gather data on recently sold properties that are similar to the subject property to establish a value. By analyzing these comparable sales, the appraiser can determine what a typical buyer would be willing to pay for the property in question, reflecting the market dynamics and conditions.

This method utilizes the principle of substitution to ensure that the value assigned to the property is aligned with current market trends and similar properties, supporting informed and rational decision-making by buyers and sellers. Typically, adjustments are made to the sales prices of comparables to account for differences, ensuring that the final estimated value accurately reflects what the market would dictate for the subject property.