In property appraisal, which principle states that the value of a property is determined by the price of similar properties?

The principle that states that the value of a property is determined by the price of similar properties is known as the Substitution Principle. This principle is foundational in property appraisal, operating under the idea that a buyer will not pay more for a property than the cost to acquire a similar substitute. Essentially, if two properties are similar in characteristics, location, and utility, they should have comparable values. If one property is priced significantly higher than its counterparts, buyers are likely to opt for the less expensive option, influencing market value.

The other principles mentioned play different roles in appraisal. The Principle of Increasing Returns relates to improvements made to a property that lead to a proportionally higher increase in value, which does not address valuation based on comparables. The Highest and Best Use Principle refers to evaluating a property based on its most profitable use, rather than a direct comparison of similar properties. Lastly, the Regression Principle describes the phenomenon where the value of a superior property is affected negatively by the presence of less desirable properties nearby, which also doesn't pertain to determining value based on comparables. Each of these principles contributes to the overall understanding of property value but does not specifically define the relationship between the value of a property and the prices of similar properties as the Substitution Principle