Which statement correctly distinguishes price, cost and value?
Correct Answer
A) Price is an amount asked or paid; cost is an amount to create or obtain; value is a monetary relationship
Price includes an amount asked, offered or paid. Cost is the actual or estimated amount required to create, reproduce, replace or obtain property. Value concerns the monetary relationship between property and those buying, selling or using it, under an identified type and definition. A price or cost is not automatically the appraised value; opinions may be retrospective, current or prospective as appropriately identified.
Why This Is the Correct Answer
Option A is correct because USPAP defines price as the amount asked, offered or paid for a property, cost as the actual or estimated amount required to create, reproduce, replace or obtain a property, and value as the monetary relationship between properties and those who buy, sell or use them. The option matches all three definitions. These distinctions show that a price or cost is not automatically the appraised value.
Why the Other Options Are Wrong
Option B: Price, cost and value are three names for the same dollar amount in a sale
Option B says price, cost and value are three names for the same dollar amount in a sale. USPAP defines them differently, and they can differ in amount.
Option C: Price is historical, cost is estimated, and value is prospective by definition, in each assignment
Option C says price is historical, cost is estimated, and value is prospective by definition in each assignment. Price can be an asking or offered amount, cost can be actual, and value opinions may be retrospective, current or prospective.
Option D: Value applies to the improvements, while price and cost apply to the land beneath them
Option D says value applies to the improvements while price and cost apply to the land. None of the definitions split the terms between land and improvements; each can apply to the whole property.
Paid, Spent, Worth
Price is what was asked or paid, cost is what it takes to create or obtain, and value is a monetary relationship under a defined type.
How to use: Use this to keep price, cost and value separate on definition questions.
Exam Tip
Watch for options that treat the three terms as the same or assign them fixed time frames.
Common Mistakes to Avoid
- -Treating sale price as automatically equal to market value
- -Assuming value opinions are always prospective
- -Believing construction cost equals value
Concept Deep Dive
Analysis
This question tests the USPAP definitions of price, cost and value. Each term means something different, and an appraised value is not simply a price or a cost. You need to match each term to its definition.
Background Knowledge
Price is what was asked, offered or paid; cost is what it takes to create or obtain property; value is a monetary relationship under a defined type of value. Appraisers develop value opinions as of an effective date that may be retrospective, current or prospective. Prices and costs are evidence that may inform value.
Real-World Application
A buyer pays $420,000 for a new home that cost the builder $360,000 to construct. The appraiser's market value opinion is $410,000 based on comparable sales. The three figures differ because price, cost and value are different concepts.
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