Perception is reality. No doubt, it’s a phrase you’re familiar with. In the context of this column, it could easily be modified to “perception is realty.” The real estate market and its associated values are all about the perceptions that lead to value. It is why a waterfront home in Montauk can sell in the millions while an equivalent home in Mastic Beach can be had for a fraction of the price. It was the catalyst for the housing boom and the reason for the housing bust.

This phenomenon is apparent across Long Island when comparing properties that could be deemed equal aside from different locations. It is not unusual for a desirable community to be located within a stone’s throw of one perceived to be less desirable, which can be observed through home values.

Let’s take a look at what it costs to build a standard 1,500-square-foot three-bedroom, two-bath, two-car garage home. The cost can run anywhere from $90 to $110 per-square-foot in terms of a material costs and labor. That price is for a turn-key residence that includes paint, roof, electric, appliances, driveway, in ground sprinklers, even the trash compactor. Based on the per square foot cost that leaves one with a home cost anywhere from $135,000 to $165,000. Even the high end of this price range would be on the low end of the housing cost spectrum on Long Island when compared to median home prices here. Obviously, these numbers do not include land costs and the other expenses, such as taxes, associated with owning a Long Island home.

Land is the 800-pound gorilla when it comes to overall housing costs, often accounting for 50 percent of the home price. And then there are a myriad of issues that affect a home’s value such as zoning, condition, supply and demand, amenities, taxes, the school district, the list is lengthy and quite involved. All of these items are taken into account when a home is appraised. And let’s remember an appraisal is simply an opinion of value, which is the reason why when a price of a given property is disputed, the courts usually order a number of appraisals in order to determine an accurate value.

A typical appraisal would include a description of the property and its locale, an analysis of the property’s “highest and best use,” comparison sales of similar properties and related market trends, according to the Chicago-based Appraisal Institute. Further statistics used to value a home include examining the current cost of reproducing or replacing a home.

But with the state of the market, even appraisers can have a difficult time determining value. The spate of foreclosures, short sales and the like can skew values. And environmental issues can significantly—and negatively—impact the value of a home. And how many times has the story been told of a home being sold on the cheap due to a divorce?

In the end, a home’s value is determined by a compromise of perceived value between a willing seller and, more importantly, a willing buyer. Ultimately, the price comes down to whether or not the two can meet in the middle.