Valuation and Financing Practice Question

Question

An escrow officer requests clarification from the broker involving principle of substitution. Which statement best describes principle of substitution? (Item 26)

Answer choices

1. A. It removes the need for written disclosure if the licensee believes the client already knows.
2. B. Recognize that buyers compare alternatives and avoid paying more than a substitute property.
3. C. It can be ignored if the transaction is expected to close quickly.
4. D. It requires the licensee to favor the other party over the licensee’s own client.

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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