Most of you have no doubt seen the images a rundown three-bedroom home in West Point Grey, listed recently at $2.4 million, which has taken the internet by storm over the past couple of weeks. Here’s what the Huffington Post and The Province had to say about it, to pick just two local examples. The story also made headlines in newspapers and TV news broadcasts across Canada.
Cue gasps of disbelief all round, with social media users and online commenters across the country dubbing the price “crazy,” “outrageous” and “disgusting,” among other words. The commenters on the Province blog descended into a full-scale, name-calling argument over it. On my own Facebook feed, friends exclaimed their outrage and shared links to some huge mansions that you could buy for the same money, in places ranging from Winnipeg to small-town Pennslyvania.
The sentiment was the same all round: “Nobody in their right mind would pay that kind of money for that house!”
The CBC was perhaps the most measured in its coverage of the story, with the headline: “Rundown Vancouver house for $2.4m: Ridiculous or a bargain?”
It certainly seems some people think that it’s more bargain than ridiculous. The listing agent told the Huffington Post that the property has been getting a lot of interest, and she even expects it to sell for over asking price. So how can this be?
The problem is, most people (wrongly) think that the issue is about the actual price, and about the house itself. In that case, it certainly would seem ridiculous. But it’s not about either.
It’s about inherent worth, and it’s about land. Ignore the price number in the listing, and ignore the structure on the lot (which will get torn down instantly anyways).
It’s simple math. If you could buy a car for $2,400, pay someone $1,000 to get it up and running and looking shiny (with zero work needed from you), and you could sell it on for $4,500 – would you do it? There’s nothing ridiculous about that. All you need is the $3,400 capital and it's a sound strategy to net you over a grand in profit.
Apply the same principle to this property. As long as the buyer has, say, an extra million bucks to spend on building a shiny new house on the lot, they’ll sell it on for $4 or 5 million easily, making an easy million dollars. And there are plenty of buyers with deep pockets. Some overseas, some local.
So now we’ve proven that it’s a sound investment for someone. But still it doesn’t explain why the prices are just so high. That all comes down to what the property – what anything, in fact – is worth.
The true value of anything is the exact price that somebody is willing to pay for it. And the more in demand and rare a thing is, the more that price will be. That’s true of diamonds, luxury cars, designer clothing – and real estate. When you look at the thing itself, it’s just a lump of compressed carbon, a hunk of shiny metal, some sewn-up fabric, or a wood-framed shack on a plot of dirt. But if that thing is rare, desirable, unusually beautiful and/or a status symbol, it will fetch a huge price. That’s just how our free capitalist market works – for better or worse.
Now, a rundown three-bed on a narrow lot may not seem to you especially beautiful or desirable or rare, but that’s where you’d be wrong.
What’s beautiful about it is the city in which it is located – arguably one of the most naturally beautiful cities in the world. Plus this particular listing is in a gorgeous neighbourhood, on a cherry-tree-lined street, with views of snowcapped mountains, all a stone’s throw from an incredible forested park. What’s desirable about it is that it is in Vancouver, a real estate investor’s paradise, a global financial safe haven and a city of world-class lifestyle. And what’s rare about it is that there is a desperate shortage of single-family plots available in our geographically constrained region, all of which are greatly coveted by potential buyers from inside and outside the city.
So it could be argued that this property is a big old diamond that just needs some polishing. And, as much as we may wish this was not the case, none of us is inherently entitled to be able to buy diamonds.
Fortunately for those who want to buy Vancouver real estate, considering the blistering demand, there are still a remarkable number of relatively well-priced options out there – just take a look on REW.ca, plug in what you're able to pay, and see.
