A client says the price paid for a property last year should be accepted as its value today. Which statement correctly contrasts price and value?
Correct Answer
A) Price is a historical fact of one deal; value reflects expected future benefits
Price is the amount actually paid in a particular transaction; it is a historical fact, not a prospective concept. Value, by contrast, has a prospective aspect because it reflects an anticipation of future benefits. So last year's price is evidence, not today's value. The distractors merge the two concepts or reverse them.
Why This Is the Correct Answer
Option A is correct because price is the historical amount paid in one transaction under its particular conditions, while value has a prospective aspect, reflecting anticipated future benefits. Last year's price is useful evidence, but it is not today's value by definition.
Why the Other Options Are Wrong
Option B: Price and value are the same once a sale has closed between willing parties
Option B says price and value become the same once a sale closes between willing parties. A price reflects one transaction's conditions and date, while value is an opinion as of a stated date, so the two can differ.
Option C: Price is an opinion of worth; value is the amount recorded at the sale
Option C swaps the terms, calling price an opinion and value the recorded amount. Price is the recorded fact of a sale; value is the opinion.
Option D: Price looks to the future; value is fixed by the most recent sale price
Option D says price looks to the future and value is fixed by the last sale. Price is historical, not prospective, and value is not fixed by any single sale.
Price looks back, value ahead
Price is a snapshot of a finished deal. Value looks ahead to the benefits a buyer expects to receive.
How to use: Use this when a question treats a past sale price as if it were current value.
Exam Tip
If an option makes price an opinion or makes value a historical fact, it has the concepts reversed.
Common Mistakes to Avoid
- -Treating a recent sale price as the property's value without analysis
- -Reversing the definitions of price and value
Concept Deep Dive
Analysis
This question tests why a past price does not settle current value. Price records what one buyer and one seller agreed to under their conditions. Value looks forward, reflecting what market participants expect the property to deliver, so it can differ from any single past price.
Background Knowledge
Appraisers distinguish price, cost and value. Price is what a particular buyer agreed to pay and a particular seller agreed to accept. Value reflects the anticipation of future benefits, which is why the income approach describes value as the present worth of future benefits.
Real-World Application
An owner refinancing a duplex insists the appraisal match what he paid a year ago. The appraiser explains that the prior price is analyzed as evidence, but the value opinion reflects current market expectations as of the effective date.
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