This document was created by an economist that later spent the balance of his career as a bank president. Jack Granger had the opportunity to interview him on several occasions.
Our firm shares this information with prospective sellers that are ready to "unravel" the mystery of creating markets for their property. This article is not necessarily about auctions; it is about "how" transactions occur. It has proven helpful to readers. Reading time is about 5 minutes… a very enlightening 5 minutes.
The Theory of the Highest and Best Results
By: Chant Cross
Einstein reduced to a written document his Theory of Relativity, as did Sir Isaac Newton with his Law of Gravity. Although certainly not even approaching the class of these historical discoveries and observations, what follows here is this writer's attempt to reduce to written communication his Theory of the Highest and Best Results.
It has been said that "good things come in pairs"; that opposites attract and that all good marriages result from "give and take" by and between the husband and wife (two people).
The very basic premise of that most marvelous and astounding tool that is today involved in almost each and everything that we do, the computer, is a series of pluses (+'s) and minuses (-'s) (again only two separate and opposing elements).
If a tree falls in the forest and there is no one there to hear it, is there any noise?….suggesting the necessity of both a transmitter and a receiver-(2 separate elements to achieve the results of noise). And yes, long before these discoveries and going back to the beginning of time and continuing to this date, this planet we call Earth was and is accorded a compelling and mighty force made up of two (2) opposites, the magnetic field [north and south; a plus and minus].
I submit that all good decisions (those that lead to the Highest and Best results) are based upon the collection and analysis of two (2) and only two opposing lists of factors. This is true regardless of the length/volume and complexities of opposing facts. If you will the pros and the cons.
In summary …..the Highest and Best results are always achieved by and through and efficient collection, analysis and application of all available +'s and –'s ( positives and negatives; pros and cons, bid prices and asked prices).
How can we employ this theory of fact to achieve the Highest and Best Results in the sale of properties (real and personal)? First, let's identify what the pair (two) of critical opposing factors are in a sale. These are the buyer and the seller who provide; the asked price and the bid price; the +'s and the –`s. How then can we most efficiently and effectively collect (obtain) and analyze (determine the viability of) all of these two (2) opposing factors, i.e. where can we find the asked prices and the bid prices? We have to describe where these two (2) opposing factors meet and result in a sale being the market (whether this be the stock market, the commodities market, the super market, the labor market, etc.) If it is stock or commodities or groceries we are selling or buying, no search for the market is necessary, as the applicable market place is well established and defined and easily accessible by all. But, where is the market (the place where buyer and seller /bid and asked price convene) for real estate, for equipment, for an art collection, for any unique item? These markets are not so well defined, requiring effort, expertise and, generally the employment of a professional to plan and assist, in locating the market and, in the final analysis, in consummating a sale. In these instances of not so well defined markets, as is discussed briefly immediately above, a seller has the choices of attempting to: ( 1) carry the sale to the market or (2) bring the market to the sale.
Attempting to carry a sale to a market that is not well defined is everything but "an exact science". How do you carry something to a desired destination if you don't know where that destination is? Application of the Chant Cross Theory of Highest and Best Results, requires one to identify the + and the -; the asked price and the bid price. Obviously, if the seller embarks upon the approach of carrying the sale to the market, the asked price is first set / established by the seller and then the arduous, time consuming process of attempting to locate a bid price acceptable to the seller must be employed. This method carries with it the profound deficiencies of, among others; since the seller must set / establish an asking price, he/she does so at the risk of beginning with a price at a level below / less than what the actual market is. How does a seller know (as opposed to guess) \\'hat the current market price is? An initial price that is in fact below the market can not and will not be recovered from and the resulting sale will be to the detriment of the seller.
How and where do you search for the location of the market that you wish to take the sale to and even though you may locate some prospects, how comfortable can you be that those thusly located are in fact the market?
Money moves and sales are made resulting from two (2) and only 2 human emotions. These are greed and fear. There are no others and any that you may conceive that you may propose as being a third (3rd) will "fit" into one of these. Attempting to take a sale to the market weakens significantly the positive effects that these two (2) emotions have on obtaining tile highest and best price. As an example, a prospective purchaser of real estate does not experience the emotions of greed and fear [that another prospective purchaser will in fact buy the property at a price greater than that they are offering now but would have been willing to have paid] sitting comfortably and casually discussing their offer with a Realtor.
Conversely, if the approach is made to bring the market to the sale likelihood of achieving the highest and best price is tremendously enhanced by, among others, the following advantages:
It is NOT necessary that the seller expose to the market what price is "guessed" to be the actual market price. Whatever the seller may have in mind is then not subject to being challenged / reduced by a prospective purchaser's "counter offer." In fact, the first offer (bid) by a prospective purchaser establishes at that time the asked price, which is then subject to (and nearly always is) challenged by another prospective purchaser who offers a higher bid price . . . and this process continues to establish asked prices that are subsequently challenged by even higher bid prices and escalates rapidly until the ultimate highest and best resulting price is achieved. When the market is brought the sale, the asking price always increases from that initially set, whereas in instances where attempts are made to take the sale to the market the initial asking price invariably declines.
There are elements of certainty as concerns finding / locating the market and determining when a sale will actually be consummated that are present in this approach that do NOT exist in the slow, casual, lackadaisical and fragmented approach marked with uncertain timing and uncertain results of taking the sale to the market.
Benefits to the seller in attaining the highest and best price results derived from the human emotions of greed and fear are clearly and distinctly present in bringing the market to the sale. A bonafide and qualified prospective purchaser will and must quickly tender without delay their highest and best offer motivated by his/her greed to own what is being sold and by his/her fear that someone else will purchase it and that he/she will never have the opportunity again to own the item being sold! The environment resulting from the market having been brought to the sale is one of urgency and competitiveness by and among qualified prospective purchasers to act NOW to tender their best offers. These elements are rarely present to a degree sufficient to prompt the highest and best price results in the process of attempting to take a sale to the markets.
If you chose to market and sell property which you own, whether it be real estate or something else, and you prefer taking your sale to the market, you may individually run ads in newspapers, put a little sign in public places, post your offering on bulletin boards, tell neighbors and friends or, in the instance of real estate, even engage a Realtor. If you have difficulty determining whether or not to in fact, actually sell something (you are undecided concerning whether or not you want to sell), I recommend taking your sale to the market for the reasons that you will likely have sufficient time and opportunity to "back out" of your decision and the notion of "parting with / actually closing a sale of whatever it may be that you are considering selling will have time to "grow on you" and perhaps gain your full acceptance the fact that a sale is going to occur. This is true because the process is slow and gradual without certainty of sale being consummated, which allows all participants to casually linger with their thought processes and the making of a decision. If, however, you are determined and committed to sale something for its highest and best price and you wish to have the sale take place by a date certain, I recommend that you chose to bring the market to the sale AND that you seek to and do employ a firm that specializes in selling through the most capitalistic and free market form of promotion... the professional auction company.