Does Price = Value ?

A common misconception by purchasing parties is that the purchase price ALWAYS equates to the market value. If this were the case, there would never be a need to have an appraisal completed on your property.

Let’s first consider the definition of Market Value provided by the Appraisal Institute of Canada:

"The most probable price for which a property should bring in a competitive and open market as of the specified date under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus."

If a buyer is not cognizant of his/her local market and surrounding conditions, there is a likelihood that they might overpay for a specific property.

An important element within the real property appraisal process is the overall relationship between cost and value. In essence, the cost that a property may be acquired for may not be representative of the true market value or ongoing conditions within the specific market.

Motivation can be another variable within many real estate transactions. Items that can influence the final price include:

Is there is a relationship between the purchasing and selling party?

Is the seller forced to relocate and/or must sell their home quickly?

Is there undue stress or severe financial problems with the owner(s)?

Other factors that must be considered include: a purchaser might be willing to pay a premium for a property due to local amenities offered and/or being within a desired neighborhood.

In short, it is the role of the professional real estate appraiser to distinguish if the specific price that has been agreed upon is reflective within the local marketplace, keeping in mind the true definition of market value.