Price vs. Value in Real Estate Valuations and Appraisals

In real estate "Price" is the amount a purchaser agrees to pay and a seller agrees to accept under the specific circumstances surrounding their transaction. Sometimes the price is reflective of "Value" as determined by an appraiser/appraisal but sometimes it can be substantially different depending on the circumstances of a specific transaction. For instance, if a seller offers financing at attractive terms to entice the buyer to purchase at a price different than most other potential buyers may pay under a normal financing arrangement, than that price has been affected and would need to be quantified and adjusted to reflect the value of the property/transaction. In essence, in the above described situation, the favorable financing led to an increase in the purchase price and is not considered typical of the market. This is just one brief example of how price and value can differ.

Appraisers spend lots of time researching transactions and figuring out how price was determined and how it relates to determining an opinion of value. An appraiser typically tries to mirror the market when determining an opinion of value for a property. Although many variations of the definition of value exists, a very brief description of value can be summed up as: value should be a reflection of the collective market as to how it relates to a specific property including consideration of a variety of market based evidence/data that reflects the combined/collective value judgement of market participants (buyers, sellers, tenants, owners, brokers, etc.). So an opinion of value usually results from the culmination of analyzing a number factors, including: comparable sales, rental rates, land sales, construction costs, current economic conditions, economic forecast, available properties and listings (inventory), various other supply and demand factors, etc.

For more information about real estate pricing, value, or the appraisal/valuation process, please visit our website and contact us with your questions.

Mike Cliggitt, MAI, MRICS
Cliggitt, Valuation, Inc.
863-661-1165
www.cliggitt.com