Over the last few days, I have read several articles, posts, and other content and it is apparent to me that many people do not have much if any concept of how value is determined in sales, in business, and in life.
It reminded me o my early days in real estate decades ago.
When I was in my late teens and very early 20’s I became very interested in real estate investing and ownership,
I researched real estate investing and real estate business information and read books, articles and took mailorder courses, and listened to audio courses. All before Google, YouTube, and online courses on platforms like Udemy were ever available.
Even then I was also taking business courses at the local community college in the evenings and weekends trying to learn more. Through it, all, I learned some very useful things that have served me well ever since, and hopefully some of which you will find useful toward helping you do better in your own business and life.
One concept I want to mention is Comparative Market Analysis.
I first learned about this in real estate – but soon discovered it is applicable to EVERYTHING else too!
To help explain it we will stick with real estate first. Basically, it works like this – if you can get access to information/data and determine the value of other like things (houses) in the same area at the same time of a similar property, then you can determine a reasonably accurate value for your subject property.
To make it a little more clear, let’s say you are looking at three bedrooms two and a half bath ranch style homes in a large well established neighborhood in a good sized city – say Richmond VA for example. You can get access to public records and to real estate databases that have records of all sales in the area. So you look and see what similar homes have sold for in the last 30. 90 180 days or so and even the last year.
Then you look at listings on similar properties that expired and did not sell – and their prices.
There are other things you can look at and consider too – but even this is enough to give you a pretty good idea of the potential market value of your subject property.
If the value comes back at $350,000 or so and you can buy it for $250,000 because you have cash and the seller is a seriously motivated don’t wanter – then it could be a very good investment for a flip (cosmetics, repairs, marketing it effectively and selling it quickly for profit).
On the other hand, if the seller owes $380,000 – and the bank/mortgage company/lender will not take less then it isn’t a good deal. If you are an agent then it is probably going to be a serious mistake – and a waste of your time and money to even list this property.
All decisions require accurate information in order to make better decisions.
Guessing Leads to Failure
These are key things you need to learn and use if you are going to be in real estate either as an investor as an agent. For that matter – even as a homeowner you should know to do this and use these things to your own advantage too.
Agents often do not understand this coming out of licensure school – and some brokers suck at training – so new agents struggle to figure it all out on their own.
When they meet with a seller for a potential listing – they just let the seller (who is more often than not just as clueless as they are!) pick the price. The price they pick is a pie in the sky emotional price in most cases and it will prevent many serious buyers from ever even finding it let alone seriously considering buying it.
That means all the time the agent puts into providing service toward that listing is a waste of time, energy, and money and will ultimately fail. The owner will be pissed because the property never sold – the agent will be frustrated because they won’t know why – even if they did everything else right.
For a new agent, this is a simple lesson that can have a profound impact on their own income and ultimately success or failure in real estate.
Supply and Demand and Changing Effects on Price
Another related element of this concept is the one of supply and demand changes.
It is dynamic and changes daily, even hourly in some things – like freight rates and prices on other products of all kinds.
When you are looking at real estate/homes – then the more of a particular type of home that is available then the lower the value of similar properties.
Let’s look at condos for example.
Let’s say you own a condo in a popular and large metro area. It has been fixed it up then is in beautiful condition
There are hundreds of nearly identical units available in the same area and that means the value is being pushed and kept very low.
There are plenty of other units all competing for a limited pool of buyers.
In another area (or the same area at a different time) conditions can be the opposite. There may be very few units available and a high demand which will result in a much higher price for the units that are available.
As builders see this and produce more units then prices come down as the availability of similar properties increases.
This is a simplified explanation and in the real world, there are all kinds of things that can and do affect the availability of units (homes/products). These things change and that means market value can rise and fall at times. It isn’t static and unchanging – so it has to be checked and monitored continuously so long as you are actively in the arena conducting business whether buying or selling.
Knowing the Value and Worth in Trucking – How to Determine Freight Rates
As we just discussed the more of something that is readily available – the lower its price is likely to be. The fewer of those things available then the higher the price will climb.
This applies in trucking too.
I read a post the other day where the author was trying to explain that the rates some truckers (owner operators and small fleet owners) are charging are too high (in his opinion) and he was talking about them being paid not for the miles they are driving but for the time they are sitting and waiting at docks as a reason for a somewhat higher than typical rate.
The problem is – he just doesn’t get it.
That is NOT what they are being paid for and his own post indicates he does not understand the market in which he makes his own living (freight broker/agent).
The rates are determined by the MARKET and based on Supply and Demand which can be estimated with comparative market analysis.
When there are very few trucks available (capacity to move products/freight) and there is a lot of freight that needs to be moved – then prices to entice the limited number of capacity owners (trucking owner operators/fleets) to move that product will rise.
They will continue to rise to the point where they eventually get the attention of a capacity owner (trucking owner operator/fleet operator) who is willing to haul it to where they want it to go at that rate.
That load gets booked – and moved.
Right now – depending on the lane – some of those rates are very high – even $10.00 plus per mile or more. Other lanes that still have more capacity (trucks available and willing to haul) are still more closer to typical market rates based on the big boards averages and run in the $2.00 to $3.00 or so on up range. Even then, there are places and pockets in the market where there are so many trucks available and so few loads the rates are almost nothing – and they will still get moved.
In more competitive areas – at those same rates – it will sit there forever and no one in their right mind with any trucking business sense is going to take those loads – not until the rates are increased to current realistic market rates. Then it will get moved.
A trucking business owner is not an employee and is not paid like one.
They are paid based on what the market will bear – and that is determined by supply and demand and can be figured out by using the principles of CMA.
Some smart brokers and agents get this – and they are raising their own rates to the shippers as they should be – so they can both afford to pay the carrier/trucker more money and make more for themselves.
Those who are more clueless and who do not get this are taking loads at rates that they are not going to be able to get covered – and another broker or carrier will soon take those loads away from them when they fail.
Whether you are an owner operator, fleet owner, freight broker, agent, or a shipper – you need to know the current market conditions based on supply and demand and know how to adjust your own operations accordingly so you take advantage of what the current rates really are.
I hope that helps.
Keep in mind you can always come join us in our Facebook group – Trucking Business Success and get access to all kinds of information, help and support – and know whenever we have additional resources such as courses and live discussions coming up too!
Have a great day today and make it count!