Principles of Appraising
Substitution and Contribution
The principle of substitution stipulates that a buyer will not pay more for a given land parcel than the price of acquiring an equally desirable substitute.  If utility is equal, the greatest market demand will be generated for the lowest priced site—the alternative site concept.  Many times, equally desirable sites that have sold are used as comparable sales. The principle of contribution considers that the various site components must be in proper proportion if the optimum site value is to be achieved. It should also be noted that a particular site component can be measured in terms of its contribution to the total site value, such as a panoramic view. Ancient appraisal lore tells us that, utility being equal, a buyer will pay a higher price per square foot for a smaller development site than for one of larger size.
Anticipation and Change
principle of anticipation provides that value is created by the expectation of future benefits, which means that site value is affected by expected future benefits or detriments.  This expectation can either enhance or impair value based on what buyers and sellers expect from the property in the future such as the type of building to be constructed and the cost of development.  The bottom line is that land has value because it provides potential utility for development. The principle of change is based on the cause and effect relationship that takes place in the market. Opinions of site value are made as of a specified date and the time period for which the site value opinion is valid may be brief.
Supply&Demand, Conformity and Externalities
The principle of supply and demand suggests that land and site values are directly influenced by the interaction of buyers and sellers because real estate markets are created by the interaction of supply and demand and competition among buyers sets price levels in a given market. With this in mind, it is easy to see why intense competition for choice lots in a particular location can cause buyers to pay premium prices. Supply is the amount of various types of land or sites made available for sale at different prices. Demand relates to the amount of land or the number of sites that are desired at a specific price at a specified time. The principle of balance and conformity maintains that value is created and maintained when the characteristics of a property conform to the demands of the marketplace. For instance, the value of a site decreases when expenditures for landfill and extensive grading are needed to allow the parcel to meet existing market standards. We also know that value is sustained when the site conforms to the physical and legal characteristics of its environment (market area). Later we will see that balance, contribution, and conformity are the basis of the extraction and allocation methods of site valuation. The principle of externalities confirms that factors external to a site can have a positive or negative impact on its value.  For example, overly restrictive zoning ordinances and land use regulations impede site development and negatively impact value.  On the other hand, infrastructures such as parks, roads, highways, open spaces, linkages, and utilities are usually positive externalities that tend to increase site values.  Other negative externalities include environmental nuisances and hazards and proximity to excessive traffic, high wind, noise, flooding, and natural disaster areas.
Conclussion
These principles are basic economics applied to real estate. There are certain premises, however, that pertain directly to real estate and its valuation. Foremost is the principle of competition, which is the force that drives land prices. Buyers and sellers operate in a competitive market. Each land parcel competes with all other land parcels suitable for the same use and located in the same market area. The principle of substitution is an extension of this concept. Competition is necessary to create a market and market value. Competition is the active demand for one site by two or more market participants.