Valuation: Written by a guy that has paid too much for something

What is it worth?  That is the nagging question for everyone in any transaction.  I have always defined something’s value as being the highest price that someone is willing to pay for it. 

Many people try to sell something that isn’t theirs to sell and that shouldn’t be a factor in the price determination.  Often I have seen people attempt to sell “can be”.  Just because this pile of rusted metal and flaking paint is a 1967 Mustang convertible doesn’t make it worth more than what it is.  With a little work it “can be” something great.  “Can be” always belongs to the buyer because it is their effort and resources that make it into something.  This is a big misconception that some unsuspecting buyers fall into and pay too much. 

We try to get appraisals on items such as jewelry, real estate, and such.  Appraisers even have licenses and certifications to prove they are supposed to be the experts.  The reason for such is that some appraisers may have their own agenda and purpose.  Property Appraisers can be very biased since the tax revenue is based on their opinion, unless challenged of course.  Real estate appraisers used to work for the buyer for financing and went high, but now they fear for their jobs and go low.  Car dealers get opinions of value from local wholesalers and car buyers get their opinion from the all knowing internet.  The problem with any outside opinion valuation is just that: it is an opinion of what they think someone will pay for an item.

I have always said the value of anything is what someone is willing to pay for it regardless of their knowledge, expertise, or gullibility.  The problem with this theory lies in the fact of what happens after the highest bidder purchases that item. The guy holding that item cannot sell it to anyone for as much or more than what he paid for it . . . until he finds another unsuspecting purchaser or makes it better in some way.  This is particularly true in the auction setting of unique items.  If a guy buys an item for $22.00 at auction, then the best amount he can immediately get is from the other guy that bid $21.00.  So after the gavel drops, what is the value now?

Let’s talk about a specific valuation.  Yuri Milner purchases stock in Facebook with his $500 Million dollar investment.  http://www.newsweek.com/2011/01/06/yuri-milner-facebook-s-russian-sugar-daddy.html  The world is watching and asking themselves, what is Facebook worth?  Just because Yuri jumps up to the plate with the highest bid, does that mean that others will follow suit or will he be stuck selling his investment to the second highest bidder?  Time will tell.  In the meantime, Yuri is so confident in his purchasing ability, he pays $100 Million dollars for a single family home in California.  This is the highest price ever paid for a single family home in the U.S.A.  http://fremontupdate.com/www__Dbizjournals__Dcom/_news_Yuri-Milner-pays-100M-for-Los-Altos-mansion.php  There must be value in being able to say that you paid more for something than anyone else would.  I didn’t know arrogance was so valuable.