Is Twitter that house down the street?
When a sale happens, those in proximity (geographically or otherwise) will quite likely use it as a reference point for the value of what they’re going to sell.
Houses A through G appear to be worth $500,000. When someone comes along and buys House E for $595,000, all remaining A through G owners sit up and pay attention.
“…well, if they got $595,000, surely that means mine is worth the same…or….more!”
Let’s look as Twitter as House E.
When Elon Musk purchased Twitter for $44,000,000,000 (…that’s billion), many opined that he overpaid. In a recent conference call, Musk himself even offered that same opinion.
“Myself and the other investors are obviously overpaying for Twitter right now…”
It’s easy to imagine the owners of all other tech companies (and tech’ish companies) sitting up and doing their own arithmetic.
“Add a bit here, deduct a bit there, divide by column B and well,
if they’re worth $44B, then by that calculation, we’re now worth $37B!”
So yes, Twitter is that house down the street. House E. The house that someone knowingly paid a premium for.
Perhaps their grandkids live around the corner. Or it backs onto a park they love. Maybe it is just up the street from a particular school or within a short stroll to their work.
Either way, it had that ‘x’ factor. The unpredictable feature that created lightning in a bottle.
They paid perceived market value + premium when many would have thought they should have paid closer to just market value.
The challenge with the real estate market is future market value assessors (future buyers, future sellers, future Realtors) don’t know the back story of why those buyers paid that premium. They just see $595,000 when all indicators say it should have been $500,000.
In the case of Twitter, Musk explained that he (a) knowingly paid a premium and (b) why he sees such a future value.
So, the next time you see a potential Twitter home, do your best to assess the back story. Was there a reason that led that buyer to pay that premium?
In a changing market, that deeper dive is critical in order to navigate successfully. It’s perfectly understandable to pay that premium when you need or want to.
The key is to know you’re actually paying it.