What is value?

29Nov09

How do we define the value of something? It’s a tricky question, we can look at other identical or very similar objects and extrapolate a value for what we have by averaging, we can check an online price guide (like Redbook for cars in Australia) or we can make up a number based on what we would like the object to be worth.

In reality, while many things may have a value on paper or a website, the value of something is dictated by what another person is prepared to pay at the time of sale. For example, your real estate agent may say your house is worth $500,000 based upon recent sales and trends but the actual value of your house is an unknown. When you recieve one offer of $450,000 and five between $455,000 and $460,000 then the value of your house is probably closer to $455,000. Of course someone may come along and offer you $550,000, the value really is whatever someone is prepared to pay.  This is a common (though often overlooked) axiom in business but something quite foreign to most people until they try selling their first car, house or used laptop.

Two recent example for me are one of my cars and my house. I decided to sell the lot and go on a trip around Australia, as you do. I didn’t expect to get more than $2000 for the car, yet someone came along and offered me $2600 simply because it was exactly what they were looking for in a cheap small car and it had low mileage. In this case I did far better than expected, in fact 30% better, because to that particular buyer the car was worth more than what I perceived the market value to be.

On the other hand, I was told by various sources that my house was worth over $430,000, yet come sale time I never received an offer more than $415,000. While I eventually negotiated up to $420, 000 (twice), the market as a whole simply didn’t agree with the ‘professional’ valuations I’d received. No-one believed my house was worth $430,000+, regardless of it’s good points, and the value of the house was determined by what someone was prepared to pay.

As you sell and buy you’ll see the same rule crop up again and again, and it’s something to keep in mind while buying as much as when selling. A great place to see this working in miniature is a garage (or yard) sale. You may think that crystal mug is worth $50, but I’d almost guarantee you’ll get $5, The actual value, regardless of what you paid and how immaculate it is, hinges on what someone is prepared to pay. Use this to your advantage and only buy things at the end of the day when sellers are desperate to offload left-overs. Scale this up when buying a car and again when buying a house. Don’t let the market tell you how much to pay, only offer what you think it’s worth. When they say no, as the seller invariably will, come back a week later and see if it’s still for sale. Offer the same again, or less if you like. After all, it’s not selling so the market isn’t prepared to pay what the seller thinks it’s worth.

So in conclusion, when selling don’t get carried away when valuers give you high expectations or by what you’d like to get. Be realistic. When you buy, be realistic when deciding what you think something’s worth, using what the seller wants as a guide only. And on that note, I’m off to sell another car!

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One Response to “What is value?”

  1. Great blog post — lots of useful advise.


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