Paying a Premium for Potential

by Leigh Martinuzzi

People do not pay for potential. People see potential, but they won’t pay for it. The thing about potential is it remains in the eye of the beholder. We all see potential differently. As homeowners, we are more strongly biased to the various levels of potential that our property holds. It may be a good sales tool if there is indeed true potential, however, the misconception that buyers will pay for unrealised potential is untrue.

Potential requires work, effort, time, and money. Some people who see the potential will also be willing to do the work if they can determine with some level of certainty that the investment will pay off however they are not going to pay a seller for yet unrealised future value or gain. The value of any property remains the same until the potential has been achieved. Even though potential may exist, the risk is in the buyer’s hands and unfortunately for the seller, buyers are unlikely to pay a premium to take on additional risk and work. Those that take on risks and do the work are the ones who appreciate the gains.

Most people are happy to pay to dine out. All our food is prepared and served to us, and generally, we don’t have to do anything! There is a perceived level of value in paying for this service. Now, imagine for a moment that you visited a cafe and the staff just pointed you in the direction to tables, chairs, and a selection of ingredients that were all stowed away. They then invited you to enjoy it for its potential and asked for payment at what would be considered standard café prices. Would you pay? Of course not.

If you believe your property has potential, then please do your research. Find the facts and any evidence to help you best understand the potential. Again, it can be used as a selling tool to help encourage buyers to purchase, as long as it is not misleading. It may help achieve a better sales price above the current fair market value. Those that take the risk, do with work, and put forth the investment required for a property to reach a new potential are the ones to be rewarded for any increased capital value. Keeping in mind, property potential is speculative and even when carried out correctly, it may not always lead to the desired gain or reward.