By Steve Christ
Baltimore, Md.-Of all of the many things that the internet has given us, I think that Ebay is one of the coolest. It's the only place on earth that I know of where you can buy a 1957 Johnny Unitas football card, a Florida Vacation home and a lucky tube of air all in the same visit.
But beyond its amazing ability to peddle both the mundane and the truly bizarre, Ebay also provides a valuable lesson on the free market itself.
It does so because in its essence it is a true market. Yes, they may occasionally traffic in the weird, but in reality what goes on there is really not that much different than what goes on in either the stock market or the housing market.
That's because like all markets what goes on at Ebay ultimately determines the value or worth of any given item, be they bobble heads or engagement rings, at any given moment in time.
Take that 1957 Unitas card, for example. There's Johnny, flat top and all, in the year before he won the championship in the greatest game ever played.
The shot is a classic, especially if you're a big fan-and I am. But to be honest, I just can't make myself buy it because seven bidders have managed to push the price to an amazing $380.00.
And as you have figured that's out of my price range. Besides, it's just a card.
But if the person with that bid that ultimately buys the card, his transaction will determine the value for that card. He'll turn over the money to the seller and in return he will receive the card.
It's a simple transaction really-the kind that happens trillions of times in businesses and markets everyday all across the world.
But what that buyer probably doesn't realize and hasn't considered is-and this is key-is that the $380.00 value that his transaction assigned to the card is entirely temporary. In fact, it ended the moment he signed his check.
That's because once he takes possession of that card, he's no longer a buyer but has become a seller. And when he changes his role, there is only one thing and one thing only that is going to determine the price of that card in the future-a willing and able buyer.
And that's what Ebay represents . It is a place for buyers and sellers to transact… and when they do… they themselves create the market.
How a tiny $0.70 company can turn your $10,000 investment into $1.07 Mil
They've found a vast cache of a metal so valuable that if they mined only 10% of it, their stocks will soar 10,709%.
Meanwhile, demand for this metal has reached 575,000 tons annually and is escalating rapidly – with new deposit discoveries simply not developing.
[Click Here for your free Report Now ]
It's no different than what happens on Wall Street everyday. The only difference is that on the street there are tons more buyers and sellers and a whole lot more money involved.
And like on Ebay the price/value of its shares are entirely wrapped up in the volume of willing and able buyers.
That's because when there is a huge amount of money on the buy side, share prices rise.
And conversely, if there is a relative dearth of buyers, the shares fall in price.
And naturally, this happens minute after minute and hour after hour until the trading session is closed. When it's all over your shares finish either red or green.
It's in the end, of course, when you find out that it was Mr. Market that decided the value of your shares.
You see, he didn't care about PE ratios, book values or patterns on a chart. All he needed to know to assign value was the price someone was willing to pay for it.
And while his truths may be hard, Mr. Market never makes a mistake.
That's because the worth of anything… be they football cards or shares of Microsoft are always only worth what someone else is willing to pay for them at a given moment.
The housing market, of course, is no different even though many sellers believe that their properties have somehow become immune to the laws of supply and demand.
But in truth, Mr. Market just simply doesn't care what they paid for the house, what they owe on it or what the appraiser told them it was worth six months ago. All he wants to know now is what someone will pay for it now.
It's how the value of everything is determined-even your house.
That's because it's not dreams, hopes, and wishes that determine the value of your home. It's a market of buyers.
And right now there just aren't a lot of them… and when this happens prices fall.
But if you don't believe me just ask Peter Nielson. He's a California Realtor and his story appeared recently in the Marin Independent Journal.
He listed a two-bedroom condo in San Rafael for an asking price of $469,000.
The condo stayed on the market for two and a half months without an offer. The seller later reduced the price four times for a total of $43,000, and its escrow closed Sept. 11 at $426,000.
It was, he said "…an example of sellers insisting on a price based on what they want to get from a property, rather than what the market data indicates would be an appropriate price. The fact is that Realtors do not set price and, in the end, the sellers do not set the price, either,' Nielsen said. ‘Buyers do, and often it takes time for sellers to accept that reality."
Needless to say these were wise words to be sure. Mr. Nielsen, it seems, gets it.
But then again it's not that complicated.
You can learn it on Ebay while you're bidding for bottles of lucky air.
BTW: The median price of an existing home sold in August dropped to $225,000, 1.7 percent below August 2005.
It marked the first year-over-year price decline nationwide in more than 11 years.
