What is the difference between what an asset sells for and what it is actually worth?
Price and value are often used interchangeably, but they represent two distinct concepts in economics and business. Understanding the difference is important when making decisions involving property purchases, business transactions, investments and other financial activities.
In an article examining the distinction between market price and valuation price, the Fair Trading Commission explores how these two measures of worth are determined, why they may differ, and the economic factors that contribute to the gap between them.
Market price reflects the actual amount agreed upon by a buyer and seller in a completed transaction, while valuation price represents a professional estimate of an asset’s worth based on established methodologies and available information. Factors such as information asymmetry, market competition, liquidity, urgency and investor sentiment can influence the relationship between the two.
The accompanying research paper, The Difference Between Price and Value: Market Price and Valuation Price as Competing Measures of Worth, further examines these concepts through applications in residential real estate, private business valuation and public securities markets. It also explores how information asymmetry contributes to differences between transaction prices and estimated asset values.
Read more and explore the research: