Well, the two words seem to be synonymous and interchangeable. Even in the thesaurus, they are explained with almost similar words.
It is the reason; people get confused about it when they buy or sell a property. They feel that the price one gets for a house, mall, complex or industry is its value.
This blog explains how they are two different things and how to conceptually differentiate between value and price?
What is value and what is the price?
Well, the investment genius Warren Buffett has a simple and straight definition of it. He says that the money we pay for something is its price and what you get in return is its value.
There is a deep meaning associated with it, even if the definition looks easy.
Suppose you have two choices of buying properties in two different localities. The face value of both properties is same.
Now, you should spend some time in determining its value. It is very important.
Suppose one property will give you more rental because it is located near the busy commercial estate. Also, the property rates are expected to rise in that area once the proposed flyover gets constructed.
The other property doesn’t expect much price movement, and the rentals are also low in the area it is located.
Which one would you like to invest? Quite obviously you will prefer the first property.
In this example, we considered the price of both properties the same. However, even if the first property is expensive, you would go for it.
Don’t make market value always the benchmark
It is quite clear from the above example that the current market value or ‘price’ isn’t the right benchmark when you delve for a property.
What you should look at is the value it returns to you after a few years down the line.
Negotiating for the best value is a key to success when you want to get success in the property deal.
If we talk about the London properties specifically, then take an example of a residential apartment in the central London.
It is a costly property, but for a young professional it is of no value because he is not interested in living there.
Even if it is available at the slashed price, the property remains unattractive for him. Why? It is, because from buyer’s perspective, the property doesn’t hold any value.
Therefore, value and price are two completely different things.
People willing pay a high price if they perceive high value
Yes, it is an important concept. When people perceive the high value of a property, then don’t mind paying a higher price. While buying a property in a premium area, they know that the value is going to be higher.
An investor always has some special purpose in mind about a property. It creates some value which could be higher than the price tag. In technical terms, it is called investment value.
Thus, the value and price are two different concepts.