The End of our Profession or Beginning of a New World Order
July 27, 2023
John Mijac, Managing Broker
Long Realty Foothills Office
Your next luxury home…Is that the highest and best use?
Perhaps you read my article last month on Sales vs. Service where I mentioned the prisoner’s dilemma and how that applies to the conflict between being a salesperson and a fiduciary. If not, read it, ask your chatbot about it, or google for a description of that dilemma. I won’t repeat the argument here except to say it is a thought experiment which proves, over the long run, that Altruism yields a higher reward than Selfishness. Naturally, any fan of Ayn Rand will disagree, until that fan realizes they are no different from any other human being. (Elitism only works if you are excellent at self-delusion.) I got knocked off my delusionary high horse after a long correspondence with Ayn Rand via Nathaniel Brandon. (The Objectivist Newsletter Editor) which involved lots of discussion over great ideas but also his relationship with Ms. Rand.
By my early teens I had read everything she had written, so being a pen pal to Ms. Rand and Mr. Brandon seemed essential…of course this was in 65-66, at exactly the time Brandon’s views of Ayn became tainted, but it did the trick for me. I knew then there had to be more to life than Objectivism and selfishness. Still, they gave me a good foundation, and helped me realize that human beings must work together to achieve anything substantive. I am sure you are wondering how this rambling train of thought has anything to do with Luxury properties. Either it does, or you’ll think I am nuts.
As I began thinking about Luxury Properties, I really had to wonder how we could determine the Highest and Best Use of so-called luxury lots. For me,
Waste, the Prisoner’s Dilemma, and Good Faith and Fair Dealing popped right into my brain. I concluded we have some inherent conflicts and might want to revisit what it means for a property to be considered Luxury. Now, though I am not envisioning a Stalinist housing future, has our capitalist society lost its way a bit? What is the highest and best use of land if only a few can afford it, and how does Waste or Fairness play into that decision? I can weave these disparate concepts into an argument but it takes some mental stretching.
First, let’s consider what fairness is. If you have read about the concept of good faith and fair dealing, you know Fairness is bound up into our constitution in Arizona and is rooted in the tradition of a handshake in the old west. Legally, it is the idea that there should be a balance in contracts, an equitable exchange over time, and that honesty and good faith are key.
If we bring that concept beyond a contract between one Buyer and Seller, into the larger equation of our society, we do begin to flirt with the essence of Socialism. However, we do not need to open a socialist door. When we form communities, whether at the scale of a neighborhood, an HOA, or a municipality, we are looking at the use of land with regards to fairness and the larger community.
Next, we should also consider Waste. Waste is the damage to real property by a tenant that lessens its value to the owner or future owner. We own land only for a moment in the life of the land; therefore, we really are tenants on it—if viewed through the lens of time. And, since we then must consider the value of that land to future owners, we also need to define what ownership means.
Wesley Newcomb Hohfeld argued that an owner’s rights and responsibilities are correlative concepts, which means that one right must always be matched by another responsibility. A right to occupy and use the land is balanced by the responsibility to monitor the use by others and the duty not to waste. Since we owe a duty to future owners not to waste the property, we also need to consider what the Highest and Best use might be for those who come after us, as well as the present owners. In other words, to act in good faith and fair dealing with posterity, we cannot commit waste on the land that we own, and we must do our best to seek the highest and best use of that land for the future as well as the present.
So, what really is the “Highest and Best Use?” Often, the Highest and Best Use is defined with a Ven Diagram, as seen here. Here, the area in which all three intersect is the desired use… but usually the focus is to find the most immediate profit. What we really need are fourth and even fifth dimensions on our chart…ones that account for time, potential waste, or fairness to the larger community. Note that the three traditional determinants take no account of those important societal constructs. Could this be what is missing in our trade? Consideration of more than the present profit? Maybe.
My office deals with many luxury properties, in fact that is the common focus of our collective endeavors. As a result, I have watched the evolution and devolution of many of these properties. The picture over time is sometimes not so pretty. However beautiful and stunning these properties are at the beginning, or even after a few remodels, entropy is inevitable. For the individual owner and for the agents involved, using the standard formula above, the highest and best use might indicate all properties in a community should be luxury…this leads to an enclave of millionaires! But the Prisoner’s Dilemma teaches us that short-term thinking is not the highest benefit over time. Just imagine, where would the help live? Who would provide the required services? What happens to those neighborhoods after the rich tire of the area, or the properties devolve? No one who buys or sells Luxury wants to hear it, but a better higher and best use integrates Luxury into the larger community, and considers that property over time.
Billionaire ghettos are not sustainable, but a more homogenous society is. That prevents waste and incorporates the concept of good faith and fair dealing with all people now and in the future. What world do we want for our children? What world do they want? It is time to consider the future of our planet, and we can do that through small steps with big properties. It might just take a new vision of Luxury.