The document discusses the difference between price and value in real estate transactions. It notes that price is determined by a single buyer, while value is driven more broadly. It also notes that recorded purchase prices may not indicate true market value, as they can be influenced by factors like commissions, appraisals, and fraudulent valuations. Finally, it emphasizes understanding the various definitions of value and being aware of current market conditions to bridge the gap between price and recorded value.

1. Analyzing Recorded
Purchase Prices
Gordon K. Vella

2. PRICE ≠ VALUE
 Price does not equate to value!
 Price and value gap is the primary reason for the
credit market and investment market instability and
collapse.
 Price is determined by a single purchaser and/or
investor while value is driven by a broader exhibition
of transactions…or not?!

3. SUB-PRIME CRISIS
Does any Single Source Bear the Blame?
 NOT ONLY the home buyers who failed to keep their end
of the mortgage bargain…
 NOT ONLY the physicists/mathematicians concocting
inexplicable formulas on which to base credit swaps and
derivatives…
 NOT ONLY the CEOs and analysts who were not looking
when the vague financial instruments were bought and
sold…
 NOT ONLY the 2000 Congress and President who
legalized gambling on Wall Street…the same law that was
established after the Great Depression…

4. ISSUES THAT IMPACT PRICE
Commercial Transactions
 Cash put on the table to off-set lease up cost for the
sake of mitigating risk for the buyer
 1031 transaction
 Owner/user may have purchased property at price
reflecting:
 “Investment Value”
 “Value in Use”

5. ISSUES THAT IMPACT PRICE
Residential Properties
 Clear variances with market are not generally exhibited
 What is value when:
 Broker pushes price for sake of commission
 Appraiser pushes value to make deal work
 Lender executes mortgage with borrow at 0% down
 Fraudulent value…What is value?

6. TYPES OF VALUES
 ARV Which Value is Recorded?
 Business value  Prospective value
 Disposition value  Retrospective value
 Fair value for purchase  Transaction value
price allocation
 Hypothetical value
 Going-concern value
 Value as is
 Insurable value
 Value in use
 Investment value
 Market value
 Liquidation value

7. AGGREGATE OF RETAIL VALUES
A Definition
 ARV or Aggregate of Retail Values
 Derived within sell out analysis of a subdivision and/or
condo valuation
 ARV is not market value
 Many lenders and developers (mistakenly) consider ARV
as figure on which to base their loan or measure their
profit
 Present value of net income stream should be taken into
account – should account for all cost including holding
cost and risk
 Net cash flow over the sell out period is then discounted
at appropriate yield rate (including profit)
 “As is Market Value” is relative to a single buyer/investor.

8. GOING CONCERN VALUE
A Clarification
 Going Concern Value
 Often misinterpreted as market value of the
real estate (hotels/theatres/senior living
properties/golf courses)
 Includesvalues of real estate, FF&E or M&E
and business values
 Real estate value is often exaggerated for lack of an
appropriate allocation

9. PURCHASE PRICE ALLOCATION
Another Clarification
 Purchase Price Allocation
 Toweight the poor performing properties in a
portfolio transaction for future collateralization
 To apportion a portfolio acquisition price to
individual properties based on market forces
 To allocate a predetermined purchase price
between the tangible and intangible assets
being acquired for financial reporting purposes

10. A CLEAR VIEW
Understanding What Is Recorded
 Current economic collapse due to a
price/value gap
 Various values may reflect anything but
market value
 Recorded purchase price may not indicate
market value
 Understanding the various definitions of value
and being in tune with the market bridges the
chasm between price and value

11. Analyzing Recorded Purchase
Prices
Gordon K. Vella