We investigate the origin of charge density wave (CDW) formation in insulators by studying BaIrO3 using high-resolution (1.4 meV) photoemission spectroscopy. The spectra reveal the existence of localized density of states at the Fermi level, E(F), in the vicinity of room temperature. These localized states are found to vanish as the temperature is lowered, thereby, opening a soft gap at E(F), as a consequence of CDW transition. In addition, the energy dependence of the spectral density of states reveals the importance of magnetic interactions, rather than well-known Coulomb repulsion effect, in determining the electronic structure thereby implying a close relationship between ferromagnetism and CDW observed in this compound. Also, Ba core level spectra surprisingly exhibit an unusual behavior prior to CDW transition.