oc | Sunday 26th January

A Home = Land + Building + Emotion

The elephant in the room for agents is always: “How much is it worth?”.  You might be having a nice conversation about the weather or the footy, and the amazing fact that you both know Peter who went to the same school as so and so. But anyone, whether buyer or seller, who is talking to either a buyer or selling agent about selling their home or one they are interested in buying, really wants to know one thing – what is it worth? HowMuch

Worth is a word that has many different meanings to many different people. That is, when you say the word “worth”, we all think of slightly different things. Worth to me, market worth, worth to the owner.

The word worth can be used in a conversation between two or more people with all parties believing they “know” exactly what the word means, but in fact meaning very different things to each party. If you brought a third or more persons into the conversation, you’d probably end up with a further completely different meaning – yet with all parties thinking they each know what the other is saying.

By way of example, one person may think they are talking about a home’s worth to the buyer, a second thinks they are talking about its worth to the seller, a third thinks they are talking about an average of what the buyer and seller may think, person four may be thinking about what the bank thinks it will be worth in a mortgage situation. Person five is thinking about what the council thinks it is worth for rateable purposes, person six thinks of replacement worth, person seven thinks about its worth to live in and what the alternatives may be, while person eight is thinking of rent and how this will be as an . And so on.

So who is correct with regards to worth? Well, they are all correct.

The definition of worth that I like the most is “an indefinite quantity of something having a specified ”.

How is a home an indefinite quantity? A home is a definite quantity surely – it is 650 square metres of north facing in plus a 320 square metre timber home needing a $150,000 cosmetic makeover. Surely that is a definite quantity. Yes it is, but a home isn’t like a TV set or a new car or a BHP share or a normal commodity. A home has one more indefinite ingredient – emotion.

A home = land + building + emotion.

So if we look at the “indefinite quantity of something” as being emotion we can move to the second part of the definition: “having a specified value”. What does “value” mean? Interestingly value can also mean a number of things, such as the value I can put on our friendship or the statement of a standard of values held by a group. But for the sake of this argument let’s define value as a money measurement.

Now there is the most emotional word of all in that part of the definition – money. It’s amazing how you can take a rational situation involving two people and make it completely irrational by adding one inanimate ingredient – money. However, in calculating worth, money is not the ingredient that leads to the irrational, but rather the emotion behind it. Money is merely a conduit, a medium of exchange, a unit of measurement, a representation of value.

So what I am trying to get across here is that a home’s worth is very much to do with it’s “beauty in the eye of the beholder”. Specifically a home has a specified quantity of land and building plus an unspecified quantity of a third component – emotion. In this forum over the next few weeks we will look at how emotion is measured. Because ultimately, in order for an exchange to take place, the worth of a house is determined via the buyer and the seller reaching an agreement on the three components.

So how much is a home worth? Well now you know. It’s a specified value of an indefinite quantity? I’m sounding like an agent aren’t I – sorry.

Printed each week in The – Melbourne’s Million Dollar Plus Magazine

TWR

Subscribe to our Market News Newsletter


Tags: , , , , ,

Be with James

Would you like to talk to us about finding or negotiating on your next home?
We buy 100 homes for our clients every year.
We buy Inner East and Bayside over $2m.
View more MasterClass Articles

Inside James Market News