Willing buyer, willing seller
“How do you explain what market value is?
Is it all about a chap named Spencer and the government 113 years ago in North Fremantle.
Hello and welcome back to weekly buying tips, I’m Dean Berman from Berman Buys.
When we think of market value.
And by market value, I’m talking about what someone will pay for your property.
We have this conception of what it is.
But really, what is market value?
It’s simply two sides agreeing.
Shaking hands and saying yes sir or yes ma’am.
I agree with your price and you agree with my price.
‘Willing buyer and willing seller’.
What some might not know is this underlying theory, was developed in a legal case between our friend Spencer and the Commonwealth in 1907.
I don’t know much about Spencer, but let’s just say he was a good bloke.
I’m going to speculate he may have had a big bushy beard, a nice tie and suit with a top hat.
Here’s Spencer’s land.
This should set the scene.
It’s in North Fremantle. Approximately 10 miles from Perth.
It measured 6 acres 1 rood and 2 perches. In modern day standards I believe this is over 25,000m2.
The land didn’t even have grass on it. It had no improvements on it except a picket fence on the boundary. It wasn’t very glamorous land.
Our friend Spencer was one day happily minding his own business. When he was delivered a letter.
It looked very official.
“Dear Mr Spencer, 5/2/1905
On behalf of the Commonwealth Government of Australia.
We will be compulsory acquiring your land for the sum of £2,641.
The Commonwealth Government of Australia“
Mr Spencer was shocked and saddened and rather insulted by this meagre sum offered by the Government.
What does someone do when they are insulted by the Government?
Mr Spencer believed his land was worth £10,000.
A vast difference to the sum offered.
In todays standards $1.692m difference.
I can understand why he was angry.
He believed the sum offered was ‘unjust’.
How do you work out the land value back in 1905?
The court ordered 10 ‘expert witnesses’ to do so.
5 for Mr Spencer and 5 for the Commonwealth Government.
Values varied between £2,066 to £8,400 or a difference of over $1.475m.
The court decided based on these experts, Mr Spencer’s land was worth £2,250.
Even less than he was initially offered.
Mr Spencer was outraged now.
It was time for the High Court of Australia.
There may have been arguments and baton beatings.
But in the High Court.
Something very interesting happened.
A definition emerged by the Judge.
Which went something like:
‘Prudent, willing but not anxious buyer and seller’.
What does this mean?
Prudent, implying savvy and business like. Almost unemotional. Purely numbers focussed.
Willing, maybe that means they would do it, but only if it made sense logically.
Anxious, could mean they wouldn’t just do it to get out or get in, they will do it if its right.
If we put the 3 together.
It’s saying that the buyer and seller need to be business like in their approach and base their decisions on numbers and logic.
When that happens you will have a willing buyer and willing seller.
Once this principal was applied to Mr Spencer’s land.
He was awarded £3,082.
Or an extra $194k on the lowest offer.
We learn many lessons from Mr Spencer v The Commonwealth.
You can have asking prices.
But at the end of the day it’s about 2 parties agreeing in a business like and unemotional manner.
I will finish on one point.
Buying or selling property can be one of the most emotional processes a human will go through.”