When you are thinking about buying something or selling something you own, how do you determine what something is really worth? If you are buying something, the value is generally whatever you paid for it. However, if you are selling something, how do you establish its value or price?

Depending on the nature of the object, the value may be more than what you paid for it (e.g., the art work you bought from an unknown artist many years ago who is now world famous, or buying gold at $200 per oz. and it is now selling at $1000 per oz.), or it may be less (e.g., buying a new car and driving it off the lot, or buying a house a few years back and that has now dropped in value). So how do you determine something’s real value? Some say the value of something is whatever someone else is willing to pay for it. Let the free market decide. But unless you actually “sell” the object, what is it really worth to you?

Many people get caught up in what they paid for an item or they may have an overly ambitious view of the object’s true value in the marketplace. Example 1: I paid $1 million for a house two years ago so it should be worth at least that. Example 2: I started my own company two year ago with $10,000 and today it should now be worth $100 million even though the company has not sold anything or made a profit. You get the picture? Are the expectations of the people in these two examples reasonable? What about Example 3: I bought my house for $200,000 twenty years ago. Two years ago someone said that they would pay me $1 million for the house but I said no. Is the house still worth $1 million today?

You can change the item and the amounts, but often times you will see people having an overly ambitious view of the value of their property.

The truth is that the value of something is what you paid for it. You won’t realize the gain or loss associated with the item until you sell it. This truth is starting to hit home for many people during this economic crisis. Until you actually decide to sell and someone else decides to buy it, the value of the item is what you paid for it. Many things that people bought during the last economic boom have lost their value during this current economic crisis. Do you know what your possessions are really worth?