Is there a difference between "Price" and "Value" when purchasing a home?

By
Real Estate Agent with Virginia Capital Realty

More than ever before, buyers (and sellers) are confusing the concepts of price and value.  When describing a "good deal" in real estate, what exactly are we referring to?

When similar homes in a neighborhood have recently sold in a range of $100-110K and a buyer is trying to negotiate the next one for $90K, they are looking at getting a "good deal".  

However, in simple terms, once they purchase at the lowest "price" the overall "value" of the house goes down: the range in the neighborhood is now $90-110K.  As time goes by, the range will go even lower to $90-$100K because the $110K sale (which is perhaps the oldest) drops off the comparables.  In this case we are describing a declining market. 

Is there such thing as a good deal at any point in a declining market? What buyers must grasp is that they should buy the best house they can afford, at the best possible price, while keeping in mind that a good price now may affect the "future value" of their purchase in terms of comparable values.  This doesn't mean they should not buy now.  It's about buying a house they "love" at the right "price" today. That should be the real value to them.  Real value now will eventually translate to real value in the future. OK...I'm already interchanging the terms price and value! Let's look into it again...

A home is not a "widget" for buyers who purchase a home to live in.  The "price mentality" in a declining market should remain an issue only for short term buyers (or investors) who are looking for a certain return on their investment.  In this case, an investor doesn't "value" a property.  Investors do the math based on numbers: current and future rental income/expenses or short term profit after improving and re-selling a property within a short time frame. Homeowners (buyers and sellers) are now struggling with this segment of buyers, especially with the foreclosures that are hitting the market.

Our role as an agent is to provide a buyer with insightful information to properly compare the "objective price" of a property over the "subjective value" of the purchase whether that is at $90K or $110K.  Buyers who want to live in a home should never trade off "value" for "price". 

Here's a simple "value" example: should someone buy a house on April 20, 2010 because of the tax credit that meets 70% of their needs/wants or, do they get more "value" if they wait for a house that meets 90% of their needs/wants that may become available in July 2010? How much value are they trading off for that $6500-$8,000 price?

When someone is buying a home to live in, there is so much more that goes into "value".  What does "value" mean to your homebuyer?  

Comments (3)

Robert Rauf
HomeBridge Financial Services (NJ) - Toms River, NJ

Great points Athina.  For a small credit to your taxes it doesnt really make sense to settle .. I add into the mix that you are buying a HOME, to LIVE in!  and that RE is a long term investment.  so if they dont think they will stay for the long run, it may not be a great time to buy...  If they are going to move in  a year it doesnt make sense to buy a home now.

Apr 26, 2010 06:02 AM
Billi Evans
Murney Associates - Springfield, MO

I'm glad I went back and found this post. Interesting thoughts presented in a logical manner. Thanks

Jun 09, 2010 06:32 PM
Stanton Homes
Stanton Homes - New Home Builder - Raleigh, NC
Design/Build Custom Home Builder in North Carolina

Great example of how we don't live in a bubble - what we do and don't do affects those around us, and ripples through to change our own future too!

Jun 29, 2010 03:21 AM