I remember hearing, during the boom days of real estate, statements like, “There is no way that house is worth that much!” after a house sells for an outrageously high price. And I remembered the statement about fair market value I learned years ago:
Fair market value is what a willing buyer would pay to a willing seller in a free market.
How much is something worth? It depends! What would someone pay for it?
In some markets, like the stock market, there are so many transactions that value is quickly and almost instantaneously established. Other markets, like real estate, tend to be much slower to move. That’s true, except for when there are booms and busts, like we’ve seen in most of the US recently.
This past week Megan posted about the house in Detroit that sold for $1. It cost the bank, who had held it as an REO, $10,000 to sell it. I guess that means the value to the bank was minus $9,999. That’s hard to believe. Negative value?
Other neighborhoods have been hit hard by having a foreclosure, abandonment or short sale in their area. That hit us recently with our California home. I posted a number of months back that even in a down market, the value had gone up. Well, that was until there was a short sale two doors down. We just had an appraisal performed that shows the value has plummeted to less than 50% of what it had been.
I think appraisers, especially in this kind of market, tend to be conservative. But, it is interesting how quick one piece of bad news can plummet a market.
How much is something worth? It seems awfully hard to tell these days.