Monday, February 23, 2009
The so-called "dream house" of the previous post is a very good example of an important lesson in economics about "price". We tend to think casually about price as "cost of goods sold" plus "profit". If I pay X for something, modify it in some way costing Y dollars, and seek a profit of Z, the price is supposedly X + Y + Z.
Except that it's not.
X + Y + Z may represent my asking price, but it is not a price until someone agrees to pay it. In the case of the "dream house", I'm sorry to say that if any buyers are smart, they'll be entering bid prices of somewhere around X. The actual price of the property will probably then be negotiated to somewhere between the two figures, probably to the dismay of the seller, who is desperate to get rid of it, but not so desperate that they are willing to lose money on the deal. I have a feeling that this property will be on the market for quite a while, until and unless someone with more money than sense comes along, or the owners decide they're tired of making 2 mortgage payments.
Would I buy it? Not likely, at any price. It has one huge flaw that would drive me to distraction. The slab is level with the ground, and the back yard slopes right down to the patio. There's no evidence of flooding, but I would be a nervous wreck until I saw my first huge rainstorm and how the water flows around the house -- or doesn't. After having my share of problems with flooding in my current house (no ruined carpets, thank God), I'm not about to touch a property where I think it might be an issue unless it can be proven that it won't be.
I wish them luck... from comparable, neighboring properties in the price range that I've seen, they're going to need it.
Posted by Tom, 2/23/2009 9:09:50 PM (Permalink). 0 Comments. Leave a comment...