Tom and Margo decide to buy a house without stainless steel appliances for $20,000 less. What theory is at work here?

The theory at work in this scenario is substitution. This principle is based on the idea that a buyer will opt for a property that offers comparable value for a lower price when certain desired features are absent. In this case, Tom and Margo are willing to buy a house that lacks stainless steel appliances for $20,000 less than a similar home that includes those modern amenities.

By selecting this home without the appliances, they are effectively substituting one property for another, based on their assessment of value. The decision reflects their priorities—valuing the lower price over the specific feature of stainless steel appliances. This illustrates how home buyers make choices based on perceived value and the availability of alternatives in the market.

Other concepts, like conformity, relate to how properties often need to align with the standards of the area to maintain value, while contribution and regression deal with how specific features impact the overall value of a property in relation to its market area. In this case, none of those theories apply as directly as substitution does, making it the most relevant choice.