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Value, Cost, and Price: What’s the Difference?

Find out what makes them distinct from one another.

Every now and then, I hear some people substitute value, cost and price when talking about real estate concepts. Little do they know that these terms cannot be used interchangeably if you’re being technical about it.

Price is the historical fact of how much was paid on several similar properties in past transactions. Take note however that the price or cost won’t accurately tell how much the current value of the property is. For some buyers, they may want to pay more than the price if they want to in order to eliminate buyer competition.

Value is the measure of how much a buyer would be willing to pay for the property that is being appraised. In coming up with the house’s value, those of other similar houses in the neighborhood are also taken into account. It can influence the appraisal results.

Cost is a measure of the expenses needed to produce a similar property. This can be more or less the current value of the property depending on several factors. In other words, this is the construction cost or the development cost. It can also mean the amount of money needed to construct a house.

The National Association of Realtors (NAR) comes up with the Cost vs. Value Report that shows average returns expected for various types of improvements that homeowners can make. If you take a look at the 2008 report, the NAR states that upgrading your bathroom can recoup costs by 66.1 percent while adding a master suite can get back 66 percent.

An important thing to consider when upgrading any part of your home is to consider your stay in the property. If it’s long term, then upgrades will be beneficial for recouping the cost.

Now that you know their dissimilarities, be careful on what term to use when you’re talking about a property.

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