Property Valuation, 3rd Edition

Chapter 3Property Markets

3.1 Introduction

When property rights are transferred from one party to another in a market where the medium of exchange is monetary, the amount is referred to as a price. A vendor might advertise an asking price, a bidder might suggest an offer price; then, usually after some period of negotiation, there might be an agreed exchange price. Thus, under normal market conditions, the economic outcome of interaction between the supply of and demand for property rights is an exchange price.

The concept of value can be difficult to pin down. Adam Smith¹ first noted the ambiguity surrounding the word ‘value’, which can mean usefulness in one sense and purchasing power in another, referring to them as value‐in‐use and value‐in‐exchange respectively. Value‐in‐exchange is an estimate of exchange price, typically an estimate of the most likely price to be concluded at a specific point in time by buyers and sellers of property rights that are assumed to be available for purchase. Consequently, exchange prices are useful indicators of value‐in‐exchange. Individual properties will have different values‐in‐use depending on the user but, insofar as these benefits are reflected in market prices, competing users should converge on a consensus exchange price.

If information on user benefits and exchange prices is readily available, it will reveal user preferences and the values users ascribed to them. Property rights, however, are traded less frequently than many other ...