Defining the Market

I would like to take this opportunity to express my appreciation to Ner Yisroel for everything I have gained there. I feel that I owe my success in learning, as well as in business, to the Yeshiva. Something that I learned when I arrived in R’ Adler’s shiur, in 1995, which I try to keep in mind every day, is a Gemara in Brachos (35b): “In previous generations, people made their learning primary and their work secondary. They were successful in both areas.” This is not referring to the number of hours spent on each. Rather, learning should be the main focus and highlight of every day, even if more hours are spent working. I also have to thank my wife, Rochel, for her constant support. Nothing that I accomplish would be possible without her.


The following essay includes some of the things I have learned in recent years in Kollel Avodas Levi, and, bez’H, I have tried to apply my learning on a practical level to my business, and to life in general.

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Working in real estate requires a constant awareness of various market trends within an assortment of diverse neighborhoods. How high should my client set the asking price? What should my client offer for a first time purchase or for an investment property? This type of judgment call needs to be made on a regular basis. We all make assessments of value, more often than we realize – when shopping for a used car, selling an old piece of furniture, or choosing a phone company or utility supplier.

It’s important to understand the underlying concepts behind value assessment. Many situations arise, other than buying and selling, when evaluations are needed – especially during tax season. The IRS (Publication 561) offers its definition of fair market value when calculating a deduction for donated property: “Fair market value is the price that property would sell for on the open market. It is the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts.” The Supreme Court (United States v. Cartwright) utilized this definition in a case regarding estate tax in 1973. The U.S. government has come a long way since the Industrial Revolution, when leading economists struggled to develop a method to calculate a “fair price” for all products. They believed that value should be objectively determined based on a fixed formula. For example, one theory stated that the cost of labor to produce a product defined its market value. Eventually, economists admitted that value is in fact subjective, constantly following the rules of supply and demand.

From a halachic standpoint, value plays a critical role in countless aspects of Jewish life: the wedding ring, the kesuba, and even the sale of chometz before Pesach. The Rosh (Responsa 80:4) explains the basic concept of value in terms very similar to the modern day definition. Perhaps economists wouldn’t have been so confused had they been more familiar with the writings of the Rosh.

Another important concept the Rosh tells us (Kidushin 1:17) is as follows: When assessing the value of merchandise, one must consider the exact time and location of the transaction. The Bais Yosef (C.M. 227:12) applies this rule to ona’ah (fair pricing). We find a similar concept regarding damages and theft. When a payment is required for a damaged or stolen item, the amount owed is measured according to the item’s value at the time of loss (see K’tzos HaChoshen 304:1). For example, the Gemara (Bava Metzia 99b) describes a situation where a barrel of wine is worth five zuz on the yom hashuk (market day). On the other days of the week, it’s only worth four. This variation in price is a result of a change in supply and demand. On the market day, there is a much higher consumer demand compared to other days. Therefore, the correct, fair price on the market day is five zuz. Charging anything more or anything less would constitute ona’ah. On other days, however, the correct price would be four. The same thing would be true regarding damages. The basic halacha would depend on which day the damage occurred (see Rema C.M. 304:5).

The question is, where do we draw the line? First example: Reuven and Shimon are both traveling cross-country, and happen to meet each other at a secluded rest stop near Albuquerque. Shimon decides to purchase Reuven’s gold watch. What would be a fair price? According to the rules of supply and demand, the value in the middle of the desert is extremely low. What if Shimon steals or damages the gold watch? How much money would he owe Reuven? Second example: Reuven is leaving his jewelry store in Manhattan after a long day’s work. He bumps into his friend Shimon on the way to his car in the back alley where he is double parked. The sale of the gold watch, or a robbery, takes place in the alley. How do we assess a fair market price? If Reuven would decide to open up shop in that location, instead of inside his store, he would have to lower his prices drastically. Also, the incident took place after hours, when the demand is much lower. How literally should we take time and location into consideration?

The Nesivos HaMishpat (C.M. 304:2) rules that an item that was stolen in the middle of the desert would be assessed based on the full market value of the nearest city. He explains that since it’s impossible to sell merchandise in the desert without taking a loss, the owner certainly had no intention of selling until reaching the city. A few questions that remain: Why should the seller’s intentions make a difference? Why should this be an exception to the rule that we always follow the time and location of the incident? 

The Gemara (Bava Kamma 7b) describes how land value would fluctuate throughout the year. During the summer months, when the plowing and planting process began, value would reach its peak. In the winter months, value would drop up to 50 percent. Demand was low because a buyer couldn’t do anything with the land until next spring. The Gemara uses this to explain the following halacha: A property owner has a piece of land that could sell in the summer for 200 zuz. But now, in the winter, it can only sell for 100. He is entitled to take 100 zuz worth of charity. The Me’iri explains that this is based on another mishnah in Pe’ah (5:4). A rich person who is traveling and runs out of money on the road, is entitled to take charity until he gets back home. Although he might be a millionaire, right now he doesn’t have access to the money. Therefore, we let him take enough charity to get him back home. Here, too, although the land is worth 200, in the winter he doesn’t have access to all of it. Therefore, we let him take charity to make up the difference.

What we see from here is that the market value of the land is 200, even in the winter. If the value were only 100, why is he limited to taking 100 in charity? He should be permitted to take even 1,000, which is the halacha for any poor person who owns less than 200 zuz. See Divrei Yechezkel (46:3) and Evan Ha’azel (S’chirus 3:3). The reason is that, similar to the stolen watch in the desert, nobody would ever try to sell land in the winter. Since the price difference is so great, all land owners are waiting until spring to sell. We can ask a similar question in this case: A property owner who decided to sell in the winter would have to lower the price, as the Gemara said, the value of land dropped during the winter months. How can we say in the same breath that the market value all year round is 200?

The answer is as follows: Supply and demand always follows the laws of nature. Any slight change in timing or location can yield a different price. But what ultimately determines market value is how society deals with it. Since all sellers are waiting until the spring, the winter is subject to the market value of 200. This is not an exception to the rule. Rather, we are redefining the time period. Similarly, the desert has no market of its own. Society has determined to extend the location of the city’s market. The same thing is true in the alley behind the store. No seller would choose to sell in such a location, when they can easily go inside their store and get full price. No seller would sell at a discount, just because it happens to be after hours. They will simply sell at full price the next business day.

With the wine barrels, however, there are two distinct markets. Some sellers hold off until the market day, while others choose to sell sooner at a discount. Only when a seller chooses to sell at a discount, does it create a new market. As the IRS explained, “With neither being required to act.” However, a seller who takes a large discount in an alley or in the desert is doing so because he’s desperate. He’s not defining the market; he’s ignoring the market, and has decided to subject himself to the economic laws of nature. Ona’ah would not apply if it’s clear that the seller is compelled financially to sell at a discount (Shulchan Aruch 227:9). However, if the buyer approaches the seller in the alley or the desert, or during the winter to purchase land, then the seller is not at all compelled to reduce the price. The correct price would be based on the full market value, and anything less would constitute ona’ah. If the same item was damaged in the desert or the alley, the full value would be owed. Only when the seller has decided to ignore the market, will it revert back to the strict rules of supply and demand.

On a practical level, the main thing to look for is the behavior of sellers.  For example, the contemporary real estate market is very different from the situation described in the Gemara. Although a lower demand is expected in the winter, the price difference is marginal, and many sellers will choose to sell during these months. Therefore, each season will assume its own market regarding theft, damages, and fair pricing. But if no one is selling during a particular timeframe or location, the market value will be subject to the full value found in the nearest market place. Even if there are a few sales taking place at a discounted rate, if the sellers are forced to do so, a new market has not been created. When a seller is required to act, the sale price does not reflect the item’s true value in the open market.  That is why foreclosures are never used as comparable sales when appraising the value of real estate.


Raphael Szendro is a local Baltimore Realtor, specializing in real estate sales and investments. He can be reached at or 443-468-6269.


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