According to the economic principle of Substitution, how is market value primarily determined?

The economic principle of Substitution is a fundamental concept in real estate appraisal, stating that a buyer will not pay more for a property than the cost of acquiring a comparable substitute property. This principle is based on the idea that the market value of a property is largely determined by what it would cost to purchase a similar property that provides a similar utility and satisfaction to the buyer.

When assessing market value, appraisers will often look at the prices of similar properties that have recently sold. If a property is overvalued compared to its substitutes, potential buyers may choose the less expensive, similar options instead. Therefore, the cost of acquiring a similar substitute property serves as a critical benchmark in determining the market value of any given property.

The other options focus on aspects that can influence market value but do not align directly with the principle of Substitution. For instance, geographical location, historical sales trends, and annual income generated can all be important considerations but they do not fundamentally encapsulate the economic principle that, ultimately, a buyer's decision is significantly swayed by the availability of comparable alternatives in the market.