Price and Value Distinctions in Real Estate
When it comes to real estate, what are the specific differences between the terms price and value? To put it simply, there are very clear distinctions between price (the cost of a certain property) and market value (the true worth of a certain property). In some instances, the price that is paid for a certain piece of property may not be entirely representative of or commensurate to the market value of the property.
In some scenarios, there may be special considerations that may have caused this type of situation to arise.
For example, if a special relationship currently exists between the seller and the buyer and there is a influence that is exercised by the latter over the former, then there may be allowance for adjustments in the price of the property despite its market value.
Another example is when there are other properties being sold or traded between the buyer and the seller. In this event, the other properties could account for the amount that is lacking in the market value of the property in question.
Conversely, there are some also some situations where a buyer may be more than willing to pay above the premium price of a specific piece of property. In a typical scenario, this number will be above the generally accepted market value, in the event that the buyer views the property as higher than what it is being advertised or marketed as.
A solid example of this would be when there is an owner of a neighboring property who wishes to merge his property with the subject property. In an event such as this, the value of the properties as a single unit would increase phenomenally.
These types of situations typically arise in the arena of corporate finance. To be specific, this type of occurrence usually happens when a merger or acquisition turns out to be valued at a price that is far higher than the price of the stock that underlies it.
In simple terms, what happens here is usually a case of the sum being greater than its parts. More than a few purchasers are more than willing to pay prices for such a deal. This can sometimes occur in the real estate landscape as well.
However, the most common instances where price is distinct from market value in the world of real estate is when one of the two parties (buyer/seller) has not been informed about the market value of a certain property is but chooses to sign a contract notwithstanding.
This is where a real estate appraiser will be very useful.
See this article in the NY Times for related material regarding home ownership