Cost: dollars to CREATE it (land + labor + materials)
Before you read
Test yourself first: 5 questions
Question 1 of 5
The principle that a buyer will pay no more than the cost of an equally desirable substitute is:
Answer: A. Substitution underlies the sales comparison approach — value is capped by the price of a comparable alternative.
Question 2 of 5
Price and value are different because price is:
Answer: A. Price is the amount paid in a specific deal; value is an estimate of worth; cost is what it took to create. They often differ.
Question 3 of 5
Which statement correctly distinguishes the terms?
Answer: A. Cost (to create), price (actually paid in a deal), and value (estimated worth to a typical buyer) frequently differ.
Question 4 of 5
A comparative market analysis (CMA) prepared by an agent is:
Answer: B. A CMA estimates likely market value from comparable sales to help price a listing or offer — it is NOT a formal appraisal.
Question 5 of 5
In the sales-comparison approach, when a comparable property is INFERIOR to the subject in some feature, the appraiser:
Answer: B. If the comparable lacks a feature the subject has, value is added to the comparable's price to make it equivalent to the subject.
Keep the streak going with more questions like these, each with a full rationale.
Must-know rules
- Price: what someone actually PAID (a historical fact)
- Cost: dollars to CREATE it (land + labor + materials)
- Value: what it's WORTH to the market today (an opinion)
- Market value assumes: willing parties, no pressure, exposure time, cash-equivalent terms
- A desperate sale below market? Price < value. Overbuilt mansion? Cost > value.
Price ≠ Cost ≠ Value: FAQs
Is Price ≠ Cost ≠ Value on the real estate exam?
Yes. Valuation & Appraisal is a scored domain on the real estate licensing exam, and this topic appears in the national portion.
Is this cheat sheet free?
Yes — every page on Cinna RE's resource library is free to read, print and share. The app adds practice questions, mock exams and a readiness score.
