Buying at the Right Price - Principle of Diminishing Returns

Posted on September 19, 2008 
Filed Under Buying Your New Home, Valerie Zinger

No matter the offering price that the home owner has chosen, the right price for you (the buyer) is what you are prepared to pay and the owner is prepared to accept.  How do you get to that price?  There are several principle of value that consciously or sub-consciously play in arriving at the price. Here is one of the Principles

The Principle of Diminishing Returns says that adding more of something valuable reaches a point where the cost of the thing exceeds the return on the thing added.  

What does this mean?  In a three bedroom home, adding a bedroom in the basement may add value to the home that is at or exceeds the cost of construction.  However, adding a fifth or sixth bedroom is unlikely to see the same level of return on the cost of construction.  If there is a spa tub in the home, it could increase the value of the house but if there are three spa tubs, there may not be a corresponding difference in value.  For you, the prudent buyer, remember:

More is not necessarily better.   

Photo credit:  tubs @ http://www.flickr.com/photos/celinet/269850055/

Valerie Zinger ~ Ottawa, Canada ~ T. 613-723-5300 ~ E. vzinger@royallepage.ca

 

Comments

One Response to “Buying at the Right Price - Principle of Diminishing Returns”

  1. James on September 20th, 2008 4:31 pm

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