A lotta times when I’m talking to a client about their housing situation I notice that he or she doesn’t really understand how to think about the value of their house. It’s standard operating procedure for me while I’m interviewing a client who is a homeowner to ask if they have an idea what their home might be worth. It’s another piece of the person’s particular financial picture, and I like to have as clear a screen shot as I can get of the situation. Now, a lot of times, when I ask this question, the client tells me that yeah, they looked up their home’s value on a real estate website, and the website told them the house is worth such and such. And then in the very next breath, they say, “But the houses around here that have sold have gone for way less.” And if I see a reason to pursue the topic of their home’s value, trying to get a more accurate idea of what it’s worth, the client often insists the number from the website is accurate.
This is when I try to explain about the dollar value of things. That you sometimes need to take with an extremely large grain of salt what someone tells you your property is worth.
My point is this: a thing–whether it’s a house, a car, or a Michael Jordan rookie card–is only worth as much as someone somewhere is willing to pay for the thing. “But the website says it’s worth this much,” they say.
“Hey, unless the website is gonna write you a check for the house for that amount, I wouldn’t put too much stock in what it says.”
I can give you a great example. I had a client named Joe who called me one day, asking for advice about his situation. Joe owned a condo just outside of downtown Detroit, and he needed to sell it but couldn’t. Joe owned the place free and clear but it came with a steep association fee, six hundred bucks a month. Joe had kept the place as a crash pad for when he was hanging out in the city and didn’t want to make a late night drive back to his house in the suburbs. He and his wife were pregnant, and he wasn’t going to be able to afford such a luxury after the baby came, so he needed to dump the condo. Problem was, he couldn’t find a buyer at any price. He had it listed for $10,000. Only ten K for a condo, and still nobody was even calling to look at it. He sent me a link to some online pictures of the place, and it was real nice. Exposed brick, hardwood floors, had a nice view, but there was no interest whatsoever after having it listed for six months.
Joe was stuck between a rock and a boulder. And he was getting desperate, what with the baby due in a few months, so he offered the condo to a good friend of his for free, just to be rid of the $600 monthly bill. And his friend turned it down. Turned down a free piece of real estate. Joe couldn’t even give it away.
“I hate to say it Joe, but the condo board will probably take it off your hands if you offer to give it to them,” I said, which is what Joe eventually did six months after the baby came.
Now you put Joe’s condo in Manhattan or downtown Chicago, and people would step over their own mother to buy the place for hundreds of thousands of dollars. But Joe’s condo wasn’t in those places, it was in Detroit. And nobody was willing to pay anything for it. Yet if you looked up Joe’s condo on a real estate appraisal website, it would probably quote a value of tens of thousands of dollars for it.
Lot of good that did for Joe.