Updated: Dec 31, 2021
As Melbourne buyers agents, we've been helping property buyers and fist home buyers buy their properties in Melbourne since 2016. One of the most confused concept is the Price vs Value. Many buyers have unfortunately mixed these 2, and this results in them not understanding what the differences are.
In this blog, we will attempt to explain this concept.
What is price? What is value?
Price is what the vendor is asking for. It could be determined by the properties that had been sold in the area. Or it could be an arbitrary number tha seller hoped to achieve.
Value, on the other hand, is subjective. It is how much a buyer is willing to pay for it. What one buyer chose to offer for a property can be very different from the other buyer. And this could be a combination of any of these factors:
Buyers' available fund
Buyers' appreciation of the building
Buyers' understanding of what the property is worth
Buyers' plans for the property
Buyers' experience (or the lack of it)
Buyers' emotional attachment to the property
Many other factors...
A sale is only possible when the price meets the value. And a sale is made only when the buyer's offer is appealing to the vendor (seller).
In real estate, it is common to see a vendor overpricing their property. Everyone believes the property they have is worth more and hope to get the best money from it.
As a buyer, the question you have to answer is, would you pay that money for it? That's the value. In your mind, is that property worth that price?
Many times, sales could not happen when the mismatch is too big.
As a buyer's agent, we look after the buyer's interest in the purchase, and we help to ensure the buyers get what they wanted, at a reasonable price they are willing to pay. We look at fair value and advice both the buyer and seller on the best possible outcome to get the sale going.
The following article is an example of when there is a huge disconnect between price and value.
Have a read, and let us know what you think.