Houses and Diamonds - A Theoretical Comparison of "Value"

Being a real estate broker and an admirer of diamonds, (but constantly under-supplied), I got to thinking about the "value" of diamonds versus the "value" of real estate-i.e., how much you pay for both and what you can actually sell them for on the open market. And with real estate, especially now.

After reading that many millions of homeowners are "upside down" or "underwater" on their loans, that is, owe more than the property is worth, I thought, "Well, so what? Is the house less desirable-bricks and mortar-wise? Does it no longer keep the rain from falling on your head? Can you no longer lock the doors? Has it really changed essentially from the day you moved in? Are the rosebushes less beautiful? Are the trees less green?" Now understand, my house is "worth" about $100K less than it was "worth" two years ago. So, no Marie Antoinette here.

On to the diamond/real estate comparison. If we can all agree that generally the purchase of a home is one driven by emotions (and not all of them good-sometimes greed is involved), we can agree that buying diamonds is also fueled by emotions, and many times, similar emotions that surface when buying a home. Nobody really NEEDS to buy diamonds, and mostly nobody really NEEDS to buy a home-despite what the NAR says. Both the NAR and DeBeers and their employees and down-line retailers (sales people) will tell you basically the same thing. That buying a home, or buying a diamond puts you in a higher status category-possibly gives you more respect, possibly more universal acceptance, and admiration. You will have "arrived"! You can drive up to your new home and be very proud and happy and secure, and feel that you have a little more prestige. You can flash your diamonds and feel basically the same way. However, more than likely, both the home and the diamonds were paid for with borrowed money. Doesn't seem to make them any less yours, right? You have all the cache, and the use of both. So pretty much, they're "yours". And, many jewelers will also tell you that you've made an "investment" by buying a diamond. Many real estate professionals will tell you the same thing about buying a home.

DeBeers likes to say that a nice diamond will cost maybe two paychecks. At least they used to, but they've been real quiet lately. Most people, however, will have to finance a diamond. Most people will have to finance a home. Now, along with your diamond, you'll get a beautiful "appraisal" document. It'll have all fancy script, and curly-cues, and a picture or two of the gem. More than likely the appraisal will be for what you paid. Maybe sometimes a little more. Similarly, along with your home purchase, you will have an appraisal-no fancy script, but you will have pictures. That is, if the bank gives you a copy of it, peasant. They may, they may not. But, somewhere there is an official document stating what your home is worth.

So, you've got a $10K diamond, say, according to the appraisal and what you paid-and that feels good, and it looks darn good, and you get many compliments from the un-diamonded. You feel good. You have, in addition to getting compliments and feeling really good about yourself, an "asset", something of value, something you can sell. If you have to, or if you feel like it. You may want to "trade up" sometime! Parlay the value. You've added to your worldly estate! Possibly you were given that diamond as a token of love, or maybe you just gave it to yourself because you deserve it. So, love and romance and dreams and accomplishments are all wrapped up in that velvet box, too, in addition to monetary "value". It makes you feel good, loved, and pretty wonderful. Just like a nice new home does.

So, you're sporting money on your hand, or in your ear(s), or around your neck. $10K worth. You think, "Heck, I could sell this thing if I needed to. Maybe if I held on to it for a little while, it'd increase in value". This isn't a crazy idea. Diamonds get more and more expensive to buy as years go by. You know that. It's just a fact. You could sell it to a jeweler, right? Good place to start. You've got your appraisal in hand, the diamond in a velvet box in the other, and you tell the jeweler you'd like to sell it just to see what he says. He looks at it through his loupe and says, "Well, I can give you $6500 for it". What on earth? The guy's a thief, clearly. You try another jeweler and get a similar offer. You cast about for other potential buyers and think of the pawn shop. Pawnbroker tells you "$4500". What in the world? You're in hock for this diamond for maybe $7500K (or more), and you can't even get that for it?

But have you forgotten the pleasure the diamond gives you? All the intangible good things that were reflected in the sparkle? Does the sun not turn it into fire anymore? Do you not remember why you bought it or why it was given to you? Why are you looking at it for just the monetary value? To me, it's the same thing with a home. A home is not a piggy-bank (do NOT ever, ever listen to the NAR again), it's not an "investment" (repeat prior caveat), it's your place to live, love, laugh, cook, bake, read, play, and hopefully lock the doors and be safe in. It offers you a refuge. It lives and breathes right along with you. It is an "asset" right now, and always will be in so many ways more than the monetary value-if you look at it for all the things that a home is and can be. And was when you bought it and made it your own. What "home" really means.

And, if you absolutely HAVE to sell it, you've lost your job, there's illness or death that forces you to sell it, you have a horrible loss that cannot be calculated in dollars. And if dollars are lost because you cannot get what you paid for it, or even what you owe on it-that, I concede willingly, triples, quadruples the emotional loss-added cruelties. If you have to sell diamonds to buy diapers and milk, the pain and humiliation is very similar. A great personal loss.

But, if you are fortunate and don't have to sell your home, even though you're "upside down", continue to try to keep the faith with the home you fell in love with, the life it represents. Don't abandon it-- protect it fiercely and proudly. It's your land, it's your home. Keep it and forget about anything called "the market". Shut your front door on all that and rather listen to the peaceful and comforting sounds of your house breathing with you. Like a diamond, your home is a gem, one of a kind, because it's yours.

~~Pam Wachter, Associate Broker SFR