Real estate and information assymetry

Sometimes it pays to delve into the past. In this case, we went back to 2005 and a story on selling homes. Let’s back up a bit to give credit: IFO’s credit union has a blog that recommended that the Wired article.

Authors Steven D. Levitt and Stephen J. Dubner explain:

In any transaction, it’s common for one party to have better information than the other. In the parlance of economists, this is information asymmetry. There’s value in asymmetry; it’s the reason why someone, such as a consumer, will pay someone else, an expert, for his knowledge.

Loyal readers of IFO already know what she thinks of “experts,” though she does use them from time to time. That recent brain surgery, for instance….

You have to read halfway down to get to the punchline (not revealed in this post), but the main content reports that when real estate agents sold their own houses they were getting quite a bit more money (controlled for other variables like location, etc.) than the houses they sold for their clients.

In addition to leaving their own homes on the market an average of 10 days longer, they also used quite a different vocabulary. A few examples: they wouldn’t say “well-maintained.” The authors said the phrase “is full of meaning to an agent – the house is old but not quite falling down.” Other words not to use:

A “fantastic” house is surely fantastic enough to warrant a high price, right? What about a “charming” and “spacious” home in a “great neighborhood!”? No, no, no, no, and no.

What encourages buyers is specificity: use physical descriptions – Corian, granite, maple, state-of-the-art, gourmet – which signal “fantastic.” Of course, if you don’t have any of those things you are out of luck, but you get the picture.

The conclusion, since this IS Wired magazine after all, is that things have changed. The explosion of information on the Internet means sellers, buyers and agents all have access to much of the same data. The gap in sale price between agents’ sales of their own homes and of their clients’ homes has shrunk considerably.

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About InvestingforOne

I've been investing in various assets by myself using a discount broker for many years. Over that time, I've developed some theories that others might find useful. Plus, there is more to investing than money. Time, talent, work, friends, family all go into developing a good and satisfactory strategy.
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