Price Versus Value ? Define Value.

[Gobears81]

Most of the markets that I work are illiquid and inefficient, so my adjusted ranges are often quite wide. Motivations of the buyer (and to a lesser extent in this market, sellers) has been a primary factor behind the ranges being so wide, and every time the federal government or Federal Reserve enacts stimulus/ Quantitative Easing, etc., our jobs get that much more difficult. I have heard some make assertions such as the value is what someone pays for it, but that completely dismisses atypical motivations and knowledge of the buyer. With that said, undersupplied markets are particularly difficult to perform appraisals in, as the best evidence may suggest that it is an "overpay", but ultimately, a property is awarded to the highest bidder and they will have to be motivated to pay some of the asking prices in this market.

Alebrewer made a good point regarding market efficiency. Common market value definitions are some variant of "the most likely price", but for most goods, there are so many examples of price that we don't need to do more than a couple minutes to figure out the "value". I love performing appraisals in relatively efficient markets and feel like the appraiser of the year when doing so, but it is the inefficient markets that are why we haven't been replaced by AI.

 

[ZZGAMAZZ]

Most of the markets that I work are illiquid and inefficient, so my adjusted ranges are often quite wide. Motivations of the buyer (and to a lesser extent in this market, sellers) has been a primary factor behind the ranges being so wide, and every time the federal government or Federal Reserve enacts stimulus/ Quantitative Easing, etc., our jobs get that much more difficult. I have heard some make assertions such as the value is what someone pays for it, but that completely dismisses atypical motivations and knowledge of the buyer. With that said, undersupplied markets are particularly difficult to perform appraisals in, as the best evidence may suggest that it is an "overpay", but ultimately, a property is awarded to the highest bidder and they will have to be motivated to pay some of the asking prices in this market.

Alebrewer made a good point regarding market efficiency. Common market value definitions are some variant of "the most likely price", but for most goods, there are so many examples of price that we don't need to do more than a couple minutes to figure out the "value". I love performing appraisals in relatively efficient markets and feel like the appraiser of the year when doing so, but it is the inefficient markets that are why we haven't been replaced by AI.

I'm probably missing the point of your comments; however, if I understand "efficiency" in the correct context, I find that sufficient due diligence almost always provides a perfectly logical, quantitative explanation for vriances among real property values. I'm unsure whether the following factor belongs in the same conversation, but I'm no longer surprised when a layperson with zero profesional exposure to markets, e.g., the borrower in a refinance, are spot on in the market value of their residence--possible because information is so readily available to the masses. [Q: Does a relationship exist between "efficiency" and "elasticity"?]

 

[Gobears81]

I'm probably missing the point of your comments; however, if I understand "efficiency" in the correct context, I find that sufficient due diligence almost always provides a perfectly logical, quantitative explanation for vriances among real property values. I'm unsure whether the following factor belongs in the same conversation, but I'm no longer surprised when a layperson with zero profesional exposure to markets, e.g., the borrower in a refinance, are spot on in the market value of their residence--possible because information is so readily available to the masses. [Q: Does a relationship exist between "efficiency" and "elasticity"?]

The characteristics of an efficient market are plenty of buyers/ sellers, low transaction costs, and information readily available. With brokerage commissions/ transaction costs being around 6% of the selling price, that in itself immediately disqualifies real estate from a truly efficient market. I recall hearing about Realtors fighting to keep the public from accessing MLS, but now we have Zillow and other websites that give the public pretty useful tools to identify what else is out there, so that has improved market efficiency.

I am almost solely on the commercial side, so scarcity of buyers or sellers is a real factor. Commercial land can require a marketing period of 10-years sometimes, simply because there are no suitable buyers at this point. It is very common that my sales include properties taking place 2 - 3-years ago, properties from other locations, or properties that have notable differences. Obviously, that is not ideal, but when there are only a few sales to choose from, we have to use the best evidence available.

I recall reviewing financials on a property and spotted something that didn't add up. Turns out that the accountant made a "mistake", which rightfully killed the deal. Even though the buyer was educated enough on the market, the true value of the property was less than the pending price, simply because the correct information was not readily available.

A product like tomatoes does not need appraisers because determining the market value/ most likely selling price means looking at the price tag. We have work on our desk because of inefficient markets, and the more inefficient a market is, the greater our job protection.

 

[George Hatch]

WRT "the most probable price"

"the most probable" is the appraiser's opinion of the hypothetical "price" , which remains a hypothetical unless/until it occurs. As the old saying goes, "once stated, price is a fact"

Once it occurs, contract price is a fact because the contract makes it a fact.​

Once it occurs, sale price is a fact because the sale makes it a fact. And only because the sale makes it a fact.​

Prior to their occurrence, neither actually exists as a fact.