July 31, 2017
Value is subjective
BY ROD McDONALD
I attended a Winnipeg landscaping seminar 20 years ago. The instructor posted a slide of an ugly tree. He asked, “How much is this tree worth?” We all laughed. Of course, the tree had no value at all. You did not need to be a professional to understand that determination. The instructor upped the ante. “Let’s add in one more variable. This is the only tree left in Winnipeg. There are no others.” By adding in that qualifier, he was teaching us there are many variables in determining value.
Many years ago, a nurseryman passed away in his 40s, a much-too-early death. His widow wanted to dispose of the nursery; it had been his passion, not hers. A kind-hearted member of the trade wanted to assist the widow in determining how much to ask. The well intentioned man provided her with a figure based upon what he would like to get for his place if he sold. The valuation was high, very high. He did not factor what others would be willing to pay, or market value.
A friend and I drove up to the nursery to visit with her, and ask about the price and equipment included in the sale. We did not have a strong interest, but we were willing to consider a purchase. She told us the asking price and we were flabbergasted. I tried to be as delicate as I could; I explained that time was not on her side, that a nursery deteriorates quickly without someone to look after the stock.
She insisted, quite vehemently, that this gentleman with many years of experience had told her this was the correct price, and she would not consider anything less. Who could argue with that position? We left and wished her well.
Two years later, with weeds overtaking the nursery stock and general deterioration setting in, she sold to a farmer — who paid her only the going rate for the land. The farmer bulldozed the nursery stock.
The man who ‘helped her out’ had done her no favour. He had denied her the opportunity to sell her property as a going concern. In the end, all she received was the market rate for the land.
There is the adage that value is nothing more than what someone else is willing to pay. The seller can attach all sorts of sentimental and perceived attributes, but value is determined by willingness of a buyer to pay a certain price, and only that price. There are no other particulars to value unless there is a willing buyer.
Years ago, I was selling a house for a family member. It was well constructed and well maintained, with no problems. It was spotless, and everything worked. One problem: This excellent home was in the heart of ‘the hood.’ Upon hearing the address, potential buyers would hang up. After three months, I received an offer that was close to established fair market value, the only offer I had received. I accepted it.
Another family member was upset. She suggested I should have gotten more since the house would have been worth double in a good neighbourhood. No problem. I don’t want to argue with family members. I simply asked for the name and number of a person willing to pay more and I would cancel the deal. Of course, there was no one else willing. Value was determined by what others were willing to pay. “You don’t always get what you want,” is not just a Rolling Stones song.
I am writing this story because a few operators from our trade have been listing their operations for sale. They are calculating the value of the land, the replacement costs for the buildings, the value of the customer base and the potential to increase that business. It sounds good, but life is not always fair. First and foremost, there has to be someone who wants that business and can finance the sale. If there is not at least one such person, the valuation changes.
So often, owners want to value all of the hard work they have put into a place. We work 70- and 80-hour weeks, we work when we are cold and hungry, we work when we are not working. We see value in that work ethic, but sadly, others do not. This is not what most people want to read or to hear and I wish it were not so.
My neighbour was facing financial difficulty with his greenhouse operation. He owed a lot of money and thought he could sell to bail himself out of this problem. He was asking $1 million, but was willing to sell to me for $700,000 cash. I examined the books and his assets. There was no value for his business, as it consisted of a lower-end clientele, and he was losing money on sales. All I could include in the value was the land, the greenhouses and equipment; all three had been poorly maintained. The place needed lots of work to bring it up to retail standard. I offered him $250,000, which he angrily rejected.
How does this story end? He was placed into bankruptcy shortly thereafter; the bank seized the property and offered it to me for $200,000. By this time, six months had passed and I was no longer interested. Someone else bought it for even less.
Over-valuation is not unique to the green trade. It exists in all parts of our society. Just ask any car salesman how many people think their vehicle is worth much more than Blue Book value. Listening to others is not always in our best interests, as those ‘others’ often have no idea of value. One homeowner had three spruce trees in his front yard. ‘Someone’ had told him they were worth $300 each. I visited his property and would have driven by, but I just had to stop and chat. The spruce trees were tall, skinny, growing close together and impossible to remove with a tree spade. I asked why he thought they had value, and again it was “someone told me.” I informed him they had no value to me or anyone else, and if he wanted them gone, he would have to cut them down. “Nope,” he argued. They are still there, growing even closer together.
The same scenario applies to setting prices for our greenhouses and garden centres, and quoting landscape projects. In determining price, we have to factor in our operating cost, the price we paid, our input costs to produce the product and our desired rate of return. One thing often missing when determining price is what I call PMV or Perceived Market Value. I was visiting my old friend Heinz at Wascana Nursery. He had alpine currants priced at $12. Right next to the $12 plants were more alpine currants that were only eight dollars, yet they were larger and nicer. I asked about the discrepancy. He told me he had paid more for the $12 one. Customers do not care what you paid; they look at perceived value and they think the smaller ones should be eight dollars, because they are smaller, and the bigger ones should be $12 because they are bigger. Pretty simple.
Value is in the eyes of the buyer as beauty is in the eyes of the beholder. All of us have paid too much for something at one time or another. Once, I was desperate for alyssum. I had none and my customers were asking for it. None of my growers had any left and I had to turn to a fellow I regularly chose not to do business with. I had to pay him a much higher price in order to obtain the plants. The question I had before me was, “Do I want the alyssum or not?” That’s life. Sometimes we pay more than what we want to pay.
Even in my personal life, I have come to understand that if you really want something, you are willing to pay more. Buyer resistance decreases in all of us at certain times. My wife and I were on Granville Island in Vancouver. She wanted to go into a shop. I told her, in no uncertain terms, “This place is nothing more than a tourist trap and everything is overpriced!” As most husbands understand, we went into the store.
My friends know I have an addiction/attraction to flower vases, excluding the Ming Dynasty. There is something about a beautiful vase I cannot resist. This shop had vases including one I just had to have. Who could not pull out his Mastercard quick enough to make this purchase? My buyer resistance was gone. I paid tourist price and did not complain.
Ask any price you want, and it only takes one buyer to get it, but sometimes an adjustment must be made. As hard as it is, we need to take our egos and sentimentality out of property and business valuations to stay on the road to success.
Rod McDonald owned and operated Lakeview Gardens, a successful garden centre/landscape firm in Regina, Sask., for 28 years. He now works full-time in the world of fine arts, writing, acting and producing in film, television and stage.