Price and Value in Real Estate
Ways that buyers and sellers see a home can make all the difference. In real estate, agents suggest that it all comes down to price. Is it true that a property sells just because of price? What about value?
We all can agree there needs to be an exchange of goods in order for a sale to occur. However, the buyer and seller might not rate value equally. When I take a client out to view properties, I determine a market price without viewing the property. Then I determine a market value once viewing and assessing all the benefits, the condition of the property and other external market data.
If we take a 2nd floor condominium which sold for $370,000, it is reasonable to assume that the same condo on the 12th floor, having the same layout and characteristics, should sell for more.
How much may depend on the view, exposure to sun, etc. and what the seller or buyer prefer. If the 12th floor condo has a view of the water and city skyline, it is reasonable to assume that is appealing to anyone and will sell for say $410,000.
Conversely, if there were an office building 50 feet away, could the second level unit sell for $10,000 more than the 12th? Sure, one could argue the many benefits of a tree-lined vistas and ability to walk up one flight of stairs to your condo.
Market Price versus Market Value
Market price is what a willing, ready and bank-qualified buyer will pay for a property and what the seller will accept for it. The transaction that takes place determines the market price, which will then influence the market value of future sales. Price is determined by local supply and demand, the property’s condition and what other similar properties have sold for without adding in the value component.
Market value is an opinion of what a property would sell for in a competitive market based on the features and benefits of that property (the value), the overall real estate market, supply and demand, and what other similar properties have sold for in the same condition.
The major difference between market value and market price is that the market value, in the eyes of the seller, might be much more than what a buyer will pay for the property or it’s true market price. Value can lie in the eyes of the beholder! Thanks for reading! - Pablo