What does the phrase "cost of acquiring an equally desirable substitute property" refer to in appraisals?

The phrase "cost of acquiring an equally desirable substitute property" directly aligns with the principle of substitution in the context of appraisals. This principle asserts that a buyer will not pay more for a property than it would cost to purchase a similar property that offers equal desirability and utility. In essence, it establishes a benchmark for determining property value, suggesting that if a property is priced higher than alternative comparable options, the buyer will likely pursue those alternatives instead.

By highlighting the cost of acquiring an equally desirable substitute, the principle of substitution underscores the importance of market competition in real estate valuation. Buyers assess properties against others in the same market; thus, if one property is seen as overpriced compared to alternatives, it may remain unsold for a longer period, which points to why understanding this principle is essential for an accurate appraisal.

The other options pertain to different valuation methods or principles that do not directly relate to this specific phrase. Appraisal by replacement cost involves calculating the cost to replace the property with a similar one, the principle of market comparables emphasizes assessing property values based on sales of similar properties, and the principle of investment value relates to the value of a property to a specific investor based on their unique criteria.