Price, value, and cost



Patti and I went to the grocery store. 


Depending on which we got, carrots and beets were about the same price, $3.49 a bunch.

That was the listed “Price”.


The location I buy those vegetables at affects the price. That price would be different if I drove down from Portland to San Jose in California.  On average about 15% more. Yet traveling to Memphis would save me about 25% on my food bill.


Time can affect pricing. Not local, but the international price of a commodities food basket (FFPI) is up 20.7% for February 22 over February 21.


I’ve been looking at software that helps track time and activity. How much time have I spent doing what? Is what I am doing a good use of my time?


“Time is Money” is a saying we have all probably heard. Whether you attribute it to Benjamin Franklin as some do, or a variation of it from a proverb written in 1572, we need to consider the value of our time. After all, we only have so much of it and it is spent one moment at a time and can not be saved to be used another day.


If you are working long hours, you may buy those vegetables online and the delivery cost could add to the price you are paying.   You might have the time to get them, but you have to ask yourself what is your time worth?


If you were so unfortunate as to have lost your job or have month at the end of your paycheck, you may have to charge those vegetables on your charge card. With credit card interest rates of 14% to almost 25%, those vegetables start to become very costly. According to, if you had a $10,000. balance and 18% interest rate, made monthly payments of interest plus 1% of the balance, it would take 28.5 years to pay off your credit card.  Now, that is a budget buster!


What value do those vegetables have?


Beets have been said to lower your blood pressure, lower your blood sugars, contain anti-inflammatories, and help brain function due to the high levels of nitric oxide.


Carrots have great benefits which may include  helping vision, reducing the risk of cancer, and preventing heart attacks and strokes.


The health benefits add a lot to the “value” of beets and carrots,  almost independent of the cost. 


Let’s talk about a little more expensive item such as a house purchase.


How do cost, price, and value relate to purchasing a home?


Initially, the Price is what the seller is asking. It is a starting point. 


What typically happens in response to an asking price, varies from location to location, point in time, and as can be expected, interest rates. These factors are all a part of supply and demand.


According to RMLS, in February 2022 the average price in Lake Oswego was $805,000. 


Do you want to guess what the average was twelve years ago in February 2010, when the subprime mortgage crisis was in full swing? It was $400,000.


Did you get that? The average value in February 2010 was half of what it was this last February of 2022.


In Lake Oswego during the last couple of months there have been houses sold for $235,000. more than the asking price. Yet, surprisingly, there have been homes sold for $250,000. less than the asking price.


During the same sixty day period in 2010,understanding that values were half of what they are now, I found only one home sold for $60,000 more than asking price with the next closest one going for $26,500 more.


Contrast that to two homes that sold for less than asking price. One sold for $424,000 less and another for $329,000. Less. Considering values were about half of what they are today that would be like homes selling for $848,000. and $658,000. LESS THAN ASKING PRICE in light of today's real estate values.


Time has drastically impacted prices in the last twelve years.


Location affects real estate values in many different ways.


Although the average price of homes in Lake Oswego in February 2022 was $805,000., Hillsboro and Forest Grove have an average of $529,600 and Beaverton and Aloha of $526,300. North Washington County and Sauvie Island come in at $657,000.


Anecdotally, back in 2010, if there was a home on a busy street it was very difficult to sell. Why? Because the supply of houses was so great, buyers had all kinds of choices of homes located on quieter low traffic streets.


In today's market, inventory has been so low that even homes on busy streets sell quickly.


There is the seller’s asking price and then the often higher selling price.


What affects the cost to a buyer of the house they buy?


Low inventory, FOMA (fear of missing out), and the emotional frenzy of buyers offering more than what they think a competing buyer will, ultimately cause a buyer to pay more than they otherwise would.


Do interest rates affect the cost to buyers?


If you are a cash buyer, rising interest rates don’t impact you in the same way as a buyer getting a loan. The cost you pay may be more closely aligned with the selling price.


Interest rates are currently based on your credit score. So those with high credit scores get the best rates while those struggling pay the most.


In the 1980’s I remember having friends who were current with their payments  on an interest rate loan of 14% and they wanted to refinance as rates were heading down around 10%. After applying for a loan they were told they did not qualify for their 10% loan. I understand banks have guidelines but it didn’t seem logical that someone could be in good standing at a much higher payment than they could get qualified for.


Kind of like the borrower who has enough money in the bank to pay cash for a house but does not qualify to borrow money and get a loan.


If you are getting a loan, interest rates  dramatically impact what you pay for a loan. According to mortgage rates peaked in October 1981 at 18.63% and had a low in January 2021 of 2.65%. Let’s do the math. A $500,000 loan at 2.65% would translate to a loan payment (not including taxes and insurance) of $2,014.82.  Now be thankful you don’t have to pay the 18.63% rate which with a $500,000 loan equates to a monthly payment of $7,792.91


The $500,000. 30 year loan at 2.65% will cost you about $725,334.82


What will that 18.63% loan cost you?   $2,805,449.13  Ouch!


According to Freddiemac on December 23, 2021, a little over three months ago, 30 year rates were 3.05% compared to 4.67% on March 31, 2022.  


So due to interest rates increases in the last three months, if you borrowed $500,000,  your monthly loan payment would have increased by $462.65.


Or to look at it another way, that same payment of three months ago which let you borrow $500,000 would now qualify you for  a loan of $410,484.03. 


These last three months of increasing interest rates would have cost you $89,515.97 in buying power!


How does value fit in with the price you pay and what it costs you?


Some people have refinanced, once, twice, even three or four times as rates came down. The focus on monthly payment has saved them considerable money compared to rising interest rates.  However, each of those refinances has cost money and eaten away at their equity.


The value of a lower monthly payment is incredible. The decreasing equity has virtually no effect until it is time to sell.


As a buyer, if I want an upscale neighborhood where everyone has a pool, that pool has value to me. 


If however, I want a house with a pool and it is an average neighborhood where most people do not have a pool, then I may be willing to pay more for that house than another buyer who thinks a pool is nothing but a costly item with maintenance costs and higher insurance rates.


If I am not planning on moving and I want to spend $50,000 to $100,000. on a pool because that is something I value, will I get my money back out?


Let’s say when you sell you only get back 25-50% of what it cost you to put in the pool.  If you have medical problems and swimming alleviates your pain and gives you renewed energy, the value of the pool to you is more than just dollars and cents, it is quality of life. I am not a tax consultant and you would need to confirm with one, but if someone was able to write the cost of their pool off as a medical expense, that could play a large part in both the cost and value of a pool to that person.


The value you give a specific home can change with your circumstances.


 If you think your home is worth $1,000,000 and you find another one you want to buy worth $2,000,000. But that seller is  forced to sell and will take $1,500,000, would you sell the home you are in for $900,000. ?


If two buyers have a bid on the same $700,000 home, which one may see a higher value in terms of what they are willing to pay?..


…buyer one buyer who sold their smaller California home for $1,000,000


…buyer two who is moving from the midwest where they sold their home of similar size and quality  for $500,000.?


Whether buying or selling, you need to understand the difference between price, cost, and value against the backdrop of your circumstances at the time, to make a decision which serves you best.