Price, Cost and Value New investors sometimes have difficulty differentiating among price, cost and value. They may assume that the price they pay for a property is also its value. They may also erroneously assume that the cost of any improvements made to a property add to its value. Definitions Price is the amount paid for a property. Bank appraisers and real estate brokers use the prices paid for comparable properties as a means of estimating the market value of a subject property.
Cost is the amount of money that a property owner has invested in a property.
For example, a buyer's cost in a property as of the day of closing includes the costs incurred in locating and negotiating the purchase, price, legal fees, and all other closing costs. Value is an estimate of the price upon which a typical buyer and seller may agree, providing neither is under duress, they are working in their own self-interest, both are reasonably informed about the market, and the property has been exposed to other potential buyers for a reasonable period of time. Value is not necessarily indicative of the price a current owner has paid for a property, or the amount invested in improvements. It may also have little relevance to the purchase price and terms an investor is able to negotiate. However, estimating a property's value is among the most important tasks faced by investors.