17/12/2024
In real estate appraisal, Market Value, Price, and Cost have distinct meanings. Market Value refers to the most probable price a property would sell for in an open and competitive market, assuming both the buyer and seller are knowledgeable and willing participants, free of undue pressure. It represents the property's worth in current market conditions and is determined using appraisal methods like the market data, cost, or income approaches.
Price, on the other hand, is the actual amount paid for a property in a specific transaction. It may differ from Market Value due to factors like negotiations, mode of payment, relationship, urgency, or personal motivations of the buyer and seller. For example, a property with a market value of PHP 5,000,000 may sell for PHP 4,800,000 if the seller is in a rush or PHP 5,200,000 due to a bidding war or can be higher if the terms of payment is installment or long term. Price is historical and reflects the result of a completed transaction.
Cost relates to the expense required to produce, build, or improve a property, including materials, labor, taxes, contractors profit and land acquisition. Unlike Market Value, Cost does not always equate to what buyers are willing to pay. For instance, building a house may cost PHP 6,000,000, but its market value could be PHP 5,000,000 depending on market demand, some features of the building may have value to a certain market. In summary, Market Value reflects current worth, Price is the agreed transaction figure, and Cost represents production or reproduction or replacement expenses.
By:
Dr. Rodel G. Revilla
Professor/Appraiser/Consultant/Broker
