VALUE: Now vs. What it could be

[Michael D.]

Hello everyone. I had 2 properties on my list of potential after final discussions yesterday I have spoke to the owners of each property as well as their agents. They all seem to have the same view which differs from mine. This had me thinking if I'm wrong and would like to start a discussion on the subject to see what ever one else does. When I value things I look at them right now as they sit, not what they COULD be in the future. Am I wrong for looking at things this way? My 2 deals were over priced due to everyone saying "well look what this could be" or "This is the future potential and I have a guy to help you build it." So am I wrong? My grandfather taught me to always value today because tomorrow is uncertain, I have since then i have lived strict by that rule. What is everyone else's take or opinion? Do you have any standards that you follow to help you in business? I have a feeling my entire local market is going to be the same outlook to make their over value seem reasonable to themselves.

[Corby Goade]

Are you wrong? Maybe...

There's not enough info here to even speculate, but it's absolutely true that properties can sell based on the highest and best use and not necessarily today's retail value. 

Here's an example- I am developing a small subdivision in my town right now. It's surrounded by small, older SFH on large lots- half to 3 acres, right in the middle of town. We had a neighborhood meeting last week to discuss the development with nearby property owners. The couple who lived right next door to our development have an old home that they rent out- it's about 1000sf on half an acre.

They were worried that our development is going to lower the value of their home- and it absolutely will- no one will pay a premium for a small, old home that butts up to a big apartment building. 

However- as the land around them develops, the house will become worth less on the retail side, but at some point, a developer will come in and pay way more than the retail value in order to include their parcel in a larger development. They will have leverage and power far beyond the actual value of their property. 

In my opinion, this is a huge barrier for many new investors- they think they understand value better than a seller might and they try to convince someone their property is worth less than the seller believes it to be- that's a rookie mistake. Your opinion of value doesn't matter one iota. If there's no opportunity, there's no opportunity, your opinion is irrelevant. 

Hope that helps- stop worrying about if you are wrong or right- it's a matter of whether there is opportunity or not.