Concepts of Cost, Price, and Value

Students often use these three terms interchangeably, but in real estate appraisal, they have distinct, technical meanings. Cost is the total expenditure required to bring a new improvement into existence (labor, materials, land). Price is the actual amount of money paid in a specific transaction; it is a historical fact (e.g., "It sold for $300,000"). Value is an opinion of worth based on an analysis of relevant data. Ideally, in a perfect market, cost, price, and value would be equal, but in the real world, a property might cost $400,000 to build but only have a market value of $350,000.