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What’s
your home worth? Your farm? Your investment property? Let’s take an even
easier example: What’s that $1.00 bill in your pocket worth? You
might answer to the $1.00 question, that it’s worth exactly $1.00. It’s
worth that because that’s what you can get for it in terms of a candy bar,
soft drink or today’s paper. It’s worth $1.00 at your bank because they’ll
change it for you -- into 4 quarters, 10 dimes or whatever combination you
desire. So,
a $1.00 bill is worth $1.00. Your dollar bill is worth $1.00. Basically,
that’s because the market says it’s worth $1.00. The rule in the marketplace
for all $1.00 bills is: you can get $1.00's worth of things for your $1.00 bill
if you, the holder of the $1.00 bill gives it to someone who has, in your
opinion, a $1.00's worth of things, and the owner of those things wants to sell
them, and values them at $1.00. Let’s
look at real estate. You believe your home is worth $150,000 (150,000 $1.00
bills) You’ve had a plumber that did some work for you tell you that a
neighbor’s house similar to yours sold recently for about that amount, and an
appraiser three years ago said your home would be worth $150,000 by now. But
is it worth $150,000 because people say it is? Because you think it is? Remember
our $1.00 bill. It wasn’t worth $1.00 in goods or services because we said it
was. Rather, it is worth $1.00 because people are willing to act upon that
premise and "trade" you things worth $1.00 for your $1.00 bill. Here’s
the rule for real estate: your real estate is only worth 150,000 $1.00 bills
if someone out there has 150,000 $1.00 bills to give you for it, and you’re
willing to sell for that, and they’re willing to buy for that. You’ve heard
this type of phrase before: "willing buyer, willing seller, neither
..." Now
that we know what our home is worth, and why, let’s look at the traditional
real estate marketplace. You decide you want to sell your home, and decide you
want $150,000 for it. A sign goes up and people start noticing that your home is
for sale for $150,000. Is it worth $150,000? Maybe. Remember, only if someone is
willing to pay that for it. In
traditional real estate marketing, your home will sell, eventually, for a value
likely $150,000 or less. You might negotiate terms and conditions, guarantees,
possession and other issues. Nevertheless, the total "package" will be
$150,000, or more likely some other lower number you and your buyer agree to. At
auction, your home will sell to the highest bidder. The auctioneer will gather
all those interested together on one day at one time, and keep asking for more
until the bidding stops. Once the bidding stops, your home is sold. But
what if the highest bid was only $132,500? You wanted $150,000 for your home,
right? The plumber said it was worth that, remember? Well, where was your
plumber that day? He wasn’t interested in buying your home, but rather
interested in projecting his opinion about its value. If someone’s not buying,
their opinion really doesn’t matter, does it? And
the traditional real estate advocates say "But that home was worth much
more, and that buyer would have even paid more, but no other bidder forced the
bidding any higher." Hmm, that never happens in traditional real estate,
does it? It happens all the time. Offer - counter - counter - counter - counter
- contract. Does that always mean the price was maximized? Surely not. What
an auction does is maximize the opportunity for the best price. It also
maximizes the other issues, in that at most auctions, terms and conditions are
not negotiable. It also sets a time and date for the sale, so other plans can be
made easier. When is that traditional real estate listing going to sell? In
cases where you have to have $150,000 for your home, because of mortgages, etc,
you may not be able to risk getting any less. So you list, and wait. You pay
insurance, mortgage payments, taxes, maintenance and eventually, your home sells
for what? What the market will bear -- maybe your price, but maybe not. And
what if your plumber was wrong and the marketplace said your $150,000 home was
worth $160,000? Is that the likely sale price with a traditional listing? How
would you ever know someone was willing to give more than the list price? You
almost never do. Does that happen at auction? All the time -- auctioneers
don’t yell to the crowd "Stop, you’re paying too much!" like your
list price does. What’s
that $1.00 bill in your pocket worth? $1.00 right? What’s your home worth? All
you can get for it. And how do you get all you can get? Consider an
auction where the market is allowed to decide -- in your favor. Published
in FPG’s March 2002 Issue |
