What principle of appraisal states that value can be affected by the scarcity of similar properties?

The principle of appraisal that states value can be affected by the scarcity of similar properties is known as scarcity. This principle indicates that when a particular type of property is limited in availability, its value tends to increase due to increased demand among potential buyers. Scarcity emphasizes the importance of supply and demand in the market; when a specific type of property becomes rare, it often leads to more competition among buyers, thereby driving the price upwards.

Understanding this principle is crucial for appraisers, as they must consider how the availability of similar properties influences market value. For instance, if there are few homes available in a desirable neighborhood, those that are on the market may be appraised at a higher value compared to homes in an area with an abundance of similar properties.

The other principles mentioned do not directly address the impact of limited supply on value. Substitution pertains to the idea that properties are valued based on the cost of acquiring a similar substitute property. Competition relates to the ways in which like properties can influence each other's value, primarily through market dynamics. Utility focuses on the functional value of properties, reflecting how their use affects desirability. While all of these principles are essential in the appraisal process, scarcity specifically highlights how limited availability can enhance property value.