The difference between price and cost

When purchasing, remodeling, repairing, or upgrading a home you have many expenses. It is important to compare your price and your cost when making these decisions. Now, you may ask, “Aren’t price and cost the same thing?” My answer answer is yes and no.

Price vs. Cost

The way I view the price of an item or service is how much this is going to cost me in that moment. For example if you needed to purchase a new fridge the price may be $2,000 that one time. The way I view the cost of an item is how much is this going to cost me for the duration of this item or service. For example if you needed to purchase a new fridge I would also consider the estimated cost of how much it runs me monthly, what is the warranty, how long will this item last. No the price is $2,000 but the cost is $2,000 plus a $40 per month utility bill and an estimated repair 5 years down the road.

When comparing purchases I do recommend considering your cost. For example if you are debating between two fridges to purchase.

Fridge #1 – The price is $1,500 with a monthly utility bill of $60 and an estimated life span of 10 years.

Fridge #2 – The price is $2,000 with a monthly utility bill of $40 and an estimated life span of 10 years.

Now fridge #1 sounds appealing as right away it is 25% cheaper than the first fridge in that moment, however the question is what will this cost me over time? Obviously you can not predict repairs or how long the fridge will last but I think it is important to review the history the product has. Fridge #1 will cost $150 per year and Fridge #2 will cost $200 per year based on the life span and initial expense. Considering the utility bill as this is your monthly expense. On a yearly rate Fridge #1 will cost $720 and Fridge #2 will cost $480 to operate. Since a fridge is useless without keeping your items cold the efficiency is something to consider.

Fridge #1 – The cost is estimated at $870 per year

Fridge #2 – The cost is estimated at $680 per year

After considering the cost after purchase which Fridge would make more sense? Does it make sense to spend a bit more upfront to save over time?

Repairs/Updates/Remodels

This area takes a bit more of a thought process to make these decisions, however it is the same concept. When thinking price you’re thinking in this moment how much will it cost me. When thinking cost you’re thinking how much will this cost me over time.

Roof repair – Is it better to purchase a 15 year shingle at $5 per square foot or is it better to purchase a 30 year shingle at $8.50 per square foot?

Floor update – Is it better to lay down a laminate flooring for $4 per square foot that may last 7 years or is it better to lay down a hardwood flooring for $9 per square foot that may last 20 years.

This raises questions, how long will I live here? Is it worth it to me to pay more so the next person doesn’t have to pay? These are all valid questions and this is where trying to make these decisions can be difficult. I am not saying it is always better to think about your cost instead of your price.

Value in real estate

This is important for homeowners and investors to think about! If you plan on owning your property for a long time cost tends to be more effective. You do need to consider resale value as buyers often times take this into consideration as well. Put yourself in a buyers shoe, would you rather have a home full of lower quality items or would you rather have a home full of great updates? I can confidently say this does make a difference in the value and demand your property offers.

In a competitive market having quality upgrades and appliances make your home more desirable to buyers. Often times this results in multiple offers, bidding wars, and buyer paying more for your property. Sure, you can have a newer property with lower quality updates and still maximize a top dollar but it may not be as often. Even in a slow market you will still have the leverage. Buyers will often times seek out homes that have a roof with lots of life left, a furnace and A/C with a 10 year warranty remaining, or new windows with a 40 year warranty instead of the cheap ones off the clearance rack.

If you’re ever struggling on how to make a decision don’t be afraid to ask for advice from friends, family, and real estate professionals. You don’t have to do what they recommend but they may open your eyes to an alternative point of view making your decision easier.