A property’s value can be different to the price that a willing buyer and a willing seller may agree to be paid for it, or indeed different to how much the property might cost.
What is the difference between cost, price and value? Basically, cost refers to the historical construction cost of the improvements plus the land. (Cost can also sometimes refer to the “replacement cost” which is the theoretical cost to re-establish the asset.) The price refers to a price that a willing buyer might buy at or a willing seller might sell at. So a willing buyer might be interested in paying $800,000 for the land and the buildings and a willing seller might also be happy to accept $800,000 in an arms length transaction where the parties acted knowledgeably, prudently and without compulsion. This agreed-upon price is known as the “market value”. The fact that an investor has a special purpose in mind for the property creates a value which may be higher than a market value – this is known as the “investment value”. Sometimes, the value you place on a possession is very different to the value someone else places on the same item. Click on the video at the top of the page, and listen to this story. In the example above, the land the ice cream shop occupied was highly desirable, but to a particular investor.
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