Notes

The principle of substitution states that a careful buyer will pay a price for a property that is only as high as the price for a comparable property. Substitution creates a ceiling of value for a specific property by determining the cost of an equally desirable property on the market. In theory, this principle forms the basis for all three approaches to value.

The principle of highest and best use states that there is one most profitable and efficient use of any given tract of land, and that the best use should dictate how a tract should be developed.

The theory of increasing and decreasing returns determines whether or not the upkeep of an improvement is cost effective. If the cost of an improvement yields a proportionate or greater value contribution, it is an increasing return. If the cost of an improvement no longer yields a value contribution, it is a decreasing return. Over improvement occurs when a property owner makes an improvement but will most likely not recover the cost of the improvement when the property is sold.

Other valuation terminology, such as conformity (which implies progression and regression), assemblage, and plottage, pertains to how the grouping of certain properties affects the value for each individual property. Situs refers to people's preference for a certain location due to factors such as weather, job opportunities, or transportation facilities.