There is a simple rule one can apply when looking at long term assets like houses or core stock holdings. If you are a seller, imagine you have cash and no house. What is the most you would be willing to pay for that house? That price should equal your selling price. Subtracting transactions fees, this is your personal clearing price. In reverse if you are a buyer, imagine you owned a house and ask yourself: what would be the least I would sell this house for? That should be your buying price. The beauty is everyone has different answers to these questions and this is what allows trade to take place. "Armchair Economist" by Steven Landsburg is a good resource for these questions.





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1 Comment so far

  1. Marlowe Cassetti on April 21, 2009 10:33 am

    That reminds me of my friend Mike. He and his wife (both in their early 70s) moved to the mountains of Colorado a couple of years ago and built their dream house, a large log home on 35 acres. Last year they had enough of rustic, rural living and found something more compatible with their lifestyle in Pueblo West, CO. They put their mountain retreat up for sale for $750,000, about the amount of their investment. After it was on the market for six months with no bids, they sat down and decided they would take a minimum of $400,000, just to get the heck out of there. In Realtor parlance they were motivated sellers. The next day they received a bid for $750,000 from a couple from California. Today Mike is happy as a clam since he now has time to fish and do leisure activities, although his wife complains that their new home is too small to hold all her stuff.


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