Which principle states that the value of a property is affected by the value of similar properties?

The principle that states the value of a property is affected by the value of similar properties is the principle of substitution. This principle is fundamental in real estate appraisal and is based on the idea that a rational buyer would not pay more for a property than what it would cost to acquire a similar property with equal utility, or value.

In practical terms, if a comparable property in the same area sells for a certain price, it provides a benchmark for assessing the value of other similar properties. If a property is listed for sale and its price exceeds that of comparable sales, buyers are likely to question its value, leading to potential downward pressure on the asking price. This interplay ensures that the values of similar properties remain in relative alignment, influencing each other's market values.

While other principles, such as the principle of conformity, relate to how properties can affect values when they are similar in nature and location, it is the principle of substitution specifically that highlights the impact of one property's value on another.