Which appraisal principle indicates that excess profits can lead to market competition?

The principle that indicates excess profits can lead to market competition is rooted in the concept of competition, which is a fundamental aspect of real estate and economic theory. When certain properties or investments generate higher-than-normal returns, it attracts competitors who want to capitalize on these profits. This influx of competition can drive up property values, leading to increased supply in the market as more investors and developers enter to take advantage of the lucrative opportunities.

Market competition is crucial because it ensures that while some investors may achieve initial excess profits, the entry of new players will eventually balance the market. As more properties become available and competition increases, profits may normalize, ultimately affecting pricing and market dynamics. This principle highlights the role of supply and demand in determining value and the efficiency of resources in a market economy.

The other principles mentioned, such as progression, conformity, and income, while important in their own contexts, do not specifically address how excess profits lead to competition in the marketplace. Progression pertains to the idea that a lower-value property gains value when surrounded by higher-value properties, conformity focuses on how properties achieve maximum value when they conform to their surroundings, and the income principle considers the value of a property based on its income-generating potential.