According to the principle of substitution, what most influences value when two similar homes are on the market?

The principle of substitution plays a crucial role in real estate value assessment. It states that a buyer will not pay more for a property than the cost to acquire an equally desirable substitute property. In the context of two similar homes on the market, the most significant factor influencing their value is their price. When buyers are faced with similar options, the one with the lower price will typically be perceived as the better deal, effectively leading to a greater demand for that property.

This showcases how market dynamics work; when two properties are comparable in terms of features, size, and condition, prospective buyers will gravitate towards the one that is priced lower. Thus, the market ultimately determines value based on the listed prices of similar homes, adhering closely to the principle of substitution. If one home is priced more attractively than another similar home, it will likely sell faster, demonstrating the direct impact of price on perceived value in a competitive market.