30.3.2023
Correctly diagnosing the relationship between the concepts of price and value and the points where they diverge is important in terms of understanding the valuation theory correctly and making sound valuations. In practice, the terms price and value are sometimes used interchangeably. However, although these two concepts are related, they theoretically have different meanings. (Ertugrul, 2008)
What are Value and Price?
In economics, price refers to the amount of money exchanged for a good or service. It is a measure of the cost of something in terms of currency. Price is determined by the forces of supply and demand in a market. When demand for a good or service is high and supply is limited, the price will tend to be higher. When a good or service is in abundant supply and low in demand, the price will tend to be lower. In short, “Value is an intangible measure of the value of a good, while the price is a concrete measure of the money value of a good in the market.” (Capital Market Communiqué - Series: VIII, No: 45, Yılmaz 2017)
Price is a term used for the amount supplied or demanded or paid for a good or service. The selling price, whether publicly disclosed or kept confidential, is a historical fact. Value is an economic concept related to the price established between buyers and sellers for a good or service to be purchased. Value is not real data, but simply an appraisal of a price likely to be paid for goods and services at a given time, according to a given definition of value. (UDS, 2005)
The concepts of value and price, which are sometimes confused with each other in terminology, are terms that should be separated from each other, especially from the point of view of the appraiser. In the event of a purchase and sale transaction, it may be explained as the selling price, or it may be called the requested price. It can be used for supply and demand amounts. Value, on the other hand, is data that can be revealed as a result of estimation and appreciation. It is a hypothetical estimate of the probable price that can be agreed upon between a buyer and seller for a good or service that would result in a sale. There may or may not be any relationship between the price paid for a good or service and the appraised value. With its version published in 2005, IDS also defines the concept of price as an indicator of relative value.
It is important to note that price and value are not always directly related. A high price does not necessarily mean something has a high value and vice versa.
Source:
Biltekin, M. (2019). Examination of the factors affecting housing valuation and housing values by using geographic information systems and regression analysis methods (Master's thesis, Mimar Sinan Fine Arts University).
Ertugrul, M. (2008). Value-Price Split and Business Value: A Theoretical Perspective. Eskişehir Osmangazi University Journal of FEAS, 3(2), 143-154
