Valuation and Financing Practice Question

Question

A buyer and seller disagree about a transaction term involving principle of substitution. Which statement best describes principle of substitution? (Item 46)

Answer choices

1. A. It prevents any later disclosure, even when new facts become known.
2. B. Recognize that buyers compare alternatives and avoid paying more than a substitute property.
3. C. It applies only to commercial property and never to residential transactions.
4. D. It is controlled only by local custom rather than by law, contract, or professional duty.

Correct Answer

B. Recognize that buyers compare alternatives and avoid paying more than a substitute property.

Explanation

The correct answer is B because principle of substitution requires candidates to recognize that buyers compare alternatives and avoid paying more than a substitute property. The other options overstate the effect of custom, oral agreement, escrow, or independent salesperson action and do not reflect safe California exam practice.

Question details

• Difficulty: medium
• Domain: Valuation and Financing
• Objective: principle of substitution

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