Understanding Market Price and Market Value

Kai is my best friend Cheryl’s cat, and she reminds me of an important marketing lesson. Despite all the costly, tricked-out toys my friend has purchased for her over the years, much to her chagrin, the toy Kai enjoys the absolute most is Cheryl’s discarded cardboard boxes. The marketing lesson in that is this: The cost of an item is only of value when someone understands cost or values the cost of that substance. This is particularly true in the world of real estate, when there is an ongoing debate about whether the ultimate factor is always price. Does a property, in fact, only sell because of price? And if that’s true, what about the value component?

Price & Value

What the seller sees as value – say, the brand new roof he just had installed, or the pool that his family has loved for the last fifteen years – may actually put less value on the property to a potential buyer, who assumes that any home should have a good quality roof or really hates to swim. And then there are personal value-added things, like a nearby bus line, or good schools, or a nearby hospital. To the buyer who doesn’t drive, has children, or has a medical condition, these may be reasons to pay more for a particular property.

The point is, buyers and sellers can see value differently. While market price can be defined as what a qualified and motivated buyer will pay for a property and what the buyer will accept, with the resulting transaction determining the market price and inflicting market value for future sales, value is something else. Price is ultimately driven by supply and demand in the area, comparables, and the condition of the property itself, but this doesn’t include the value component, which is much more elusive.

Effectively, market value is an opinion of what the property might sell for based on its features and benefits while considering local supply and demand, the market as a whole, and neighborhood comps. Sound pretty similar? The ultimate difference between the two is the market value might be one thing to the seller, and another thing entirely to a potential buyer. Back to my friend’s cat and her preference for an old cardboard box, and the lesson there – value is in the eye of the beholder. 

I love an old advertising slogan that said: “Judgement is the ability to recognize quality without consulting the price tag.” It’s something to remember next time you think cost alone can be perceived as value. There’s just so much more to it than that, and if you want help determining what upgrades will be of value to your future buyers when you go to sell, I can help.

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