The value of a home

You've probably heard it said before, "the value of a thing is equal to what ever you can convince a fool to pay for it."

It's never truer than in real estate. When you shop around for a new Xbox360, everyone is pretty much selling it for the same price. That's because the product is the exact same anywhere, so your incentive to shop around increases. In other words, it doesn't matter where you buy your Xbox360, they're all the same when you bring them home, therefore if you can find a lower price somewhere else there no reason for you to pay the higher price.

Real estate is different because no two products are exactly alike, making pricing more of a negotiation than a sale. You can't truly "value" a property, because it's worth is simply what you can convince someone else to pay for it.

There's a great post on The Landlord Blog that discusses the negotiation of a house purchase. Essentially the builder offered a "huge" reduction in price (about $75k), but when the blogger checked it against comparable sales, it was still too expensive. They made what they felt was a fair offer, and it was turned down.

So who was right? The builder or the blogger? The answer is neither. The builder obviously felt that the property could fetch a higher price than the blogger was offering, while the blogger obviously felt that the property was not a good value at that price. Only time can tell, but right now we can say that the blogger was 100% correct to walk away (good poker players know when to fold, and good investors know when to walk away from a bad deal). If the builder can find "a greater fool", then they made the right choice as well.