The principle of substitution is very important for both buyers and sellers to keep in mind in real estate. The principle states that if a buyer can purchase (or rent) a house 2005, 4 bedroom 3 bathroom, 2200 square foot house for $480,000 in central Ventura, why would someone pay $570,000 for a similar 2005, 4 bedroom 3 bathroom house? Similarly, why would someone pay $1,600 per month to rent a 3 bedroom 2 bath if they could rent a 3 bedroom 2 bath in a similar neighborhood for $1,495?
The principle of substitution is similar to comparing a house via market comparables, however these are typically properties that are actively on the market.
Anytime you hear the principle of substitution, just think: What else is on the market that is similar to this price. What can my money buy for this price.
This is why it is imperative that Realtors educate home buyers on the availability of properties on the market.