Additional Math Pages & Resources

Friday, January 15, 2010

What is it worth?

This is a fundamental question in a capitalist society. A mathematician's delight, too.

What is it worth? or perhaps the past tense: Was it worth it? or future tense, Will it be worth it?

It's the premise that underlies many television shows, from The Price is Right to Antiques Roadshow.

You look at an object, guess the price, then learn the real price, and scream Wow! or mumble Darn.

You ask your credit union - How much can I borrow to buy this old house? And they send out an appraiser.

Before sending your children to college, but after looking at the cost of tuition, you wonder Is it worth it?

WORTH is an great word. I like this definition: 
The value of an object in relationship to a purpose.

The way or the context in which an item is used determines much of its value. For example, on Antiques Roadshow, where the objects are normally collectible rather than utilitarian, values are quoted "at auction" or "in a retail shop" or "for insurance purposes."

In the car valuing business, databases and books are created by companies like in the US, Glass's Guide in the UK, and many others. I mention these two specifically because I have worked for each of them. We used surveys, research, statistics (and a bit of plain old good judgement) to determine approximate values for used cars. We qualified those valuations by asking questions like mileage, age, condition, options, color, location, etc.

Some sources go to great lengths to define categories of pricing:
  • Auction Price - what a dealer will pay to get a car for inventory (also called wholesale)
  • Trade-In Price - when handing it off to a new or used car dealer
  • Dealer Price - a retail price including profit asked by a dealer
  • Private Sale - average price in a private transaction between two  drivers (non-dealers)
  • List Price - the published asking price from the manufacturer, through an authorized dealer
The research is compiled into products known as PRICE GUIDES (not price lists).

It's not just the free market that worries about worth. The IRS has set up rules to determine what the value of a car is if you donate it to a charity. You can't just go to Edmunds' site and look up the price, then take that value as a credit against your income. The deduction depends not only on the beauty of your pristine or junky automobile, but also on what the charity does with it.

WORTH = The value of an object in relationship to a purpose.

If the charity gives your car to a poor person, that's one value. If it keeps your vehicle and uses it in primary mission of the charity, such as a food bank carting food around, that's another value. And if the car just goes right to the scrapyard, that's a third possible value. Woe to you if you misrepresent the value to the IRS. The rules have been exploited in the past, and they now check very carefully.

The cost to produce an object is not directly related to its value. It plays a part in the way initial prices are set, but sometimes it's very costly to produce something that has relatively little value to prospective buyers. What value does a gold-plated hair dryer have to a bald man?

WORTH = The value of an object in relationship to a purpose.

Most of us are always looking for a better deal, and we can be slightly tiresome in those efforts. A favorite story of mine goes like this:

Sir David Brown was the long-time owner of Aston Martin cars. A friend sidled up to him one day at a social event, saying, Sir David, I hate to impose on our friendship, but I wonder if, considering the long years we've known each other, you might be able to sell me an Aston at cost, rather than retail. 

Brown reportedly replied, I'd love to, it will be £2000 over the list price, and the first car I haven't lost money on in 10 years.

No comments:

Post a Comment

Type your comment here