For what it’s worth / a lesson in economics

The concept of appraisal values is as confusing to me as slurred Spanish spoken by a stuttering drunk. My brother majored in business so maybe he might be able to grasp the concept better than me (then again, he turned that business degree into a lucrative career of waiting tables for a chain restaurant that promotes “flair”). To me, an item is only worth what people are willing to pay for it. If a rare, 16th century gold coin is worth $2 million that means there’s some bonehead out there with too much money willing to pay $2 million for it. If a painting is worth a hundred grand it’s because someone will pay $100,000 to get it. Guides, catalogs, and estimates mean nothing because I believe market determines price–not some ‘expert’ in an expensive suit with bifocals.

When I was a kid, I use to collect baseball cards and the baseball card collector’s bible was a monthly magazine called “Beckett.” Not only did it provide interesting articles, it also listed the price of every baseball card known to man. This was useful when trading cards with your buddies so nobody got ripped off (“I’ll trade your Carl Yastrzemski baseball card for my Omar Vizquel”). But when it came to actual monetary value of your cards, it wasn’t even close. If I took my David Justice rookie card to a shop, I was lucky if the proprietor offered me ten cents on the supposed dollar. If I tried to sell a card to my friends, they would eagerly pass because none of us could afford appraisal “value” of the card (anywhere from a nickel to 50 cents). The point is, no one was ever willing to pay Beckett’s price for the card…which is probably why baseball card shops went the way of the dodo.

Kelley Blue Book is a favorite source of cardealers and insurance companies but I don’t need kbb.com to tell me what a car is worth. When it comes to either buying or selling a used car, I let the people to determine its “worth.” Why am I going let an outside source predispose the value of a vehicle when I could easily look at autotrader.com and see what everyone else is selling their car for? That’s the real value. The last car I sold, Kelley Blue Book said it was worth $1200; I got $2400. Last car I bought was “worth” $4000; I paid $3500. I’m not a shrewd negotiator. I just know a car’s worth what it is.

The experts might appraise a car at a certain value; however, if a car isn’t available at that value then that’s not how much it’s worth. Just like the baseball cards, a car is only worth what people are willing to pay. I have no clue what formula appraisers use or how Kelley comes up with his numbers, but in my mind they’re all garbage–the market determines value and a product is only worth what people are willing to pay (at least that’s how the economy is viewed in the eyes of this English major).

In our quest for a car, The Wife and I came across a vehicle that was listed for a good 25-30% more than comparable cars. Most models of identical mileage, age, and features were listed for about $1500 less than this particular ad. Even if the car was in pristine condition, who would be willing to shell out $7000 to a private party when the same exact vehicle could be had for about $5500?

At first I blew it off because the seller was clearly nuts. People have a tendency to overvalue their own property; I figured this chap kept his car in excellent shape and had it detailed on a regular basis. Now that it was time to sell his vehicle, he was looking to recoup some of those carwash fees (note to all car owners out there: weekly trips to the carwash do not increase the value of your car–they just make it cleaner). While The Wife pursued other leads, I couldn’t stop thinking about the overly-priced car.

“Even if you barter with him, he’s not going to drop his price $1000,” The Wife said to me.

She was probably right, but I figured it wouldn’t hurt to call. Besides, I was dying to know what made this car “worth” $1500 more than its counterparts. Was the interior laced in gold? Did it come with a free bag of pearls? Was it secretly a hovercar?

I called the seller up. I couldn’t resist. If I brought with me a stack of ads for vehicles priced significantly less, he might be willing to barter. But above all, I wanted to know what made his car worth more than everyone else’s (please be a hovercar; please be a hovercar).

“Hello, I’m calling about the vehicle listed on Autotrader,” I said to the seller.

“Ah yes…I must make a clarification,” he said. “The price listed on the ad was incorrect…”

I knew it! A bunch of prices quickly raced through my head. The car was $5700 and we are going to luck ourselves into an excellent vehicle because Autotrader listed the wrong terms and we were the only people with the courage to call for a car that was overpriced. Maybe he accidentally typed the wrong number. Maybe he wanted to sell it for $5000 and accidentally pushed the seven key instead of the five. How close are the five and seven?

“…the asking price is actually $7700,” he continued.

I paused and then repeated what I thought I heard–just in case I missed something. “The car is listed for $7000 but that’s a mistake and your asking $7700?”

“That’s correct,” he told me.

This piqued my curiosity even further. I asked him a few questions about the car. Was it leather? Did it have power windows? Is it plated in diamonds?

“Forgive me if this rude, but I was curious how your determined the asking price for your car,” I said as politely as possible. “Other comparable cars are listed for a significantly different price.”

“That’s okay,” he said more warmly than I would have anticipated (most people don’t respond well to being accused of price gouging). “The wholesale value of the car was $28,000. When you factor in the gross adjustments of the economy multiplied by the rate of inflation over the past 13 years divided by future earnings of the stock market plus the gross annual income of residents outside the county market…” Now that’s not exactly what he said. In fact, it’s probably not even close. As I mention before, I was an English major–he used a lot of big words I probably should have known (I never say I was a good English major) but I doubt anyone other than a certified public account could understand what he said. The gentleman was very pleasant when he spoke and sounded like he knew what he was talking about, but for the life of me I had no idea how he came up with that number.

I thanked him for his time and told the gentleman we would have to pass because the vehicle was out of our price range (I left it ambiguous for him to determine if the $7000 or $7700 figure that scared us off). This was a car that we weren’t going to buy.

“Well, what did he say,” The Wife asked me.

“It turns out the ad was wrong…and he’s asking $700 more than the price shown.”

“He wants more money?!?!? How did it come up with that number?”

“Magic,” I said. It had to be magic–because I didn’t understand that formula at all.

Unfortunately for our CPA, he’s never going to sell that car–not at that price. I’d even be willing to wager we were the only people who even called about the car (unless there are other curious cats out there). I didn’t understand his reasoning; his math might have been right based on the things they teach in business school. But in the real world, the market determines value–and no one will value that car at $7700 (or $7000).