Fair Market Value?
In my post yesterday about a building lot listed for sale on Thornhill Road I hinted that its asking price of $850,000 precluded a builder from making a profit and hence was too high. A reader then asked what a fair price would be for the lot. I think my answer is that “fair” has nothing to do with it. In a better market, where houses on Thornhill could command $2,000,000, $850,000 for this lot might fly. But, as Mr. Rumsfeld so famously said,you don’t sell your house on the market you’d like to have, you sell it on the market you do have. With that, he marched his troops into Iraq and the rest is history.

The market right now will not support a Thornhill price of $2,000,000. In fact, I’m not sure it will support anything much above $1,250,000 in which case, accounting for building costs, the market value of this lot is … very small. Don’t like that? Don’t sell, and wait for better days.

When I opined that relaxing the mark to market rule for banks might make sense several readers promptly corrected and educated me. The current value of anything, be it toxic loans or real estate, is whatever buyers will pay for it, not what its owner hopes it will be worth in the future. I did reprint a letter I received from a (soon-to-be unemployed) mortgage broker who said it wasn’t “fair” to make banks mark their unwanted loans down to zero because, while the market might consider them worthless now, surely a better time would come and some value would be discovered. When better times come, then those loans might indeed be worth something. But right now, securities with no buyers and real estate that no builder or even end user wants has no market value. Let’s hope that changes soon.


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3 responses to “

  1. Anonymous

    While I enjoyed your well reasoned analysis of the term “fair”, you side stepped the ultimate question. But alas, I can understand why; as a realtor, providing hard dollar figures for a projected sales price to public listings on in a open forum is probably not prudent.

  2. Chris Fountain

    I don’t think I side-stepped the question, I said I didn’t know, which I don’t. If you’ll tell me where the DOW will be 6 months and 1 year from now, I’ll be glad to make a dollar prediction on the selling prices of these houses. But otherwise, my guess is just that: a guess. I did suggest that 50% off original asking price might be in the ballpark and the pessimist in me still thinks that’s possible, even probable.

  3. Anonymous

    Forgive me, I missed your guestimate.

    Now, as for moi, I am fearless forecastor, so here goes; the dow will be 8500 in 6 months and 9100 in 12 months.

    50% off the asking price? ouch!

    Cos Cobber