What is difference between Cost, Price and Value?

Cost, Price & Value are most often used in Quantity surveying sector. Theye are often used interchangeably, but they have distinct meanings in economics and business. Cost is the amount of money that a seller spends to produce a good or service. Price is the amount of money that a buyer pays to a seller for a good or service. Value is the benefit or satisfaction that a buyer derives from a good or service. Understanding the differences between these three concepts can help businesses and consumers make better decisions in the market.

COST

The total cost of developing and completing a property (asset) is known as the construction cost. This cost comprises various elements, such as the cost of materials, labor, equipment, permits, design fees, contractor fees and other related expenses. The construction cost is determined by various factors, such as the size, location, design, quality and complexity of the project. The construction cost is an important indicator of the feasibility and profitability of a property development project.

One way to estimate the cost of building a residential house is to break down the various components of the project and assign a value to each of them. Some of the main components are:

• Material costs: This includes the cost of purchasing the materials needed for the construction, such as lumber, concrete, steel, roofing, insulation, drywall, plumbing, electrical, etc.
• Labor costs: This includes the cost of hiring workers to perform the tasks involved in the construction, such as carpentry, masonry, roofing, plumbing, electrical, painting, etc.
• Equipment costs: This includes the cost of renting or buying the equipment needed for the construction, such as excavators, cranes, trucks, generators, tools, etc.
• Permits and fees: This includes the cost of obtaining the necessary permits and approvals from the local authorities to start and complete the construction, such as zoning, building, plumbing, electrical, fire safety, etc.
• Design and architectural fees: This includes the cost of hiring a professional designer or architect to create the plans and specifications for the house, as well as to oversee and coordinate the construction process.
• Contractor fees: This includes the cost of hiring a general contractor to manage and supervise the entire construction project, as well as to subcontract some of the work to other contractors or specialists.
• Site preparation and infrastructure costs: This includes the cost of preparing the land for construction, such as clearing, grading, leveling, landscaping, etc., as well as connecting the house to the utilities and services available in the area, such as water, sewer, gas, electricity, telephone, internet, etc.
• Miscellaneous costs: This includes any other costs that may arise during or after the construction, such as contingency allowances, financing costs, insurance costs, taxes, warranties, etc.

PRICE

The price of a property or asset is determined by the developer based on the cost of development and the expected profit. This implies that the price is usually more than the cost of producing the asset. However, sometimes the price can be less than the cost because of some unfavorable factors. These factors can reduce the attractiveness of the location, property, or asset, making it hard to sell. Therefore, owners or developers may have to sell the property at a lower or distressed price, suffering a loss.

The pandemic caused a decline in demand and a rise in uncertainty for many property developers. As a result, some developers had to resort to selling their properties at lower or distressed prices to cope with the challenging market conditions.

VALUE

One of the most important aspects of real estate is property value, which is the amount of money that a property is worth or can be sold for in the current market. Property value reflects the balance between the supply and demand of real estate, as well as the preferences and expectations of buyers and sellers. There are several factors that affect property value, such as:-

• Location: The location of a property determines its accessibility, convenience, safety, and attractiveness. Properties that are close to amenities, transportation, schools, and employment opportunities tend to have higher values than properties that are isolated, remote, or in undesirable areas.
• Size and features: The size and features of a property affect its functionality, comfort, and appeal. Properties that have more rooms, bathrooms, square footage, storage space, and amenities such as pools, garages, or fireplaces tend to have higher values than properties that have less or none of these features.
• Condition: The condition of a property reflects its quality, maintenance, and appearance. Properties that are well-built, well-maintained, and well-presented tend to have higher values than properties that are poorly constructed, neglected, or outdated.
• Market conditions: The market conditions refer to the economic and social factors that influence the supply and demand of real estate. Properties tend to have higher values when there are more buyers than sellers, low interest rates, high income levels, high consumer confidence, and low inventory. Properties tend to have lower values when there are more sellers than buyers, high interest rates, low income levels, low consumer confidence, and high inventory.
• Comparable sales: The comparable sales are the prices of similar properties that have been sold recently in the same area. Comparable sales provide a benchmark for determining the fair market value of a property based on what other buyers and sellers have agreed upon.