Name two fundamental economic principles underlying appraisal.

Name two fundamental economic principles underlying appraisal.

• A. Inflation and interest rates
• B. Substitution and supply/demand
• C. Amortization and depreciation
• D. Zoning and capitalization

Answer: (B)

Substitution and supply-and-demand are the two fundamental economic principles behind appraisal. Substitution means a buyer won’t pay more for a property than the price of an equally desirable substitute, so value is anchored to what else is available in the market. This principle is why appraisers compare similar properties and look for competitive prices among them. Supply and demand describe how value moves with the balance of how much property is available (supply) and how much buyers want it (demand); when demand is high and supply is limited, prices rise, and when demand weakens or supply increases, prices fall. Together, these ideas explain why market data—sales, trends, and pricing—translate into an estimated value in the appraisal process.

Substitution and supply-and-demand are the two fundamental economic principles behind appraisal. Substitution means a buyer won’t pay more for a property than the price of an equally desirable substitute, so value is anchored to what else is available in the market. This principle is why appraisers compare similar properties and look for competitive prices among them. Supply and demand describe how value moves with the balance of how much property is available (supply) and how much buyers want it (demand); when demand is high and supply is limited, prices rise, and when demand weakens or supply increases, prices fall. Together, these ideas explain why market data—sales, trends, and pricing—translate into an estimated value in the appraisal process.