Too much information?
Real estate transparency is the Holy Grail of internet companies like Zillow.com. The theory is that full information disclosure will lead to wiser decisions. OK, I can buy that. But what if the wiser decision is not to buy the house? Perhaps full disclosure, may actually discourage sales of homes? A radical thought? Maybe not.
Home sellers and prospective homebuyers have opposing goals. Sellers want to sell for the highest price, while buyers want to buy for the lowest possible price. It is against the seller’s self-interest to reveal anything to the buyer that would put them at an economic disadvantage. The seller will not disclose defects (except as required by law– gee, government imposed transparency– someone tell the anarchists) since defects will turn away prospective buyers. Less buyers = Less sales. This transactional inefficiency is caused by negative information. And let’s face it, most resale homes are not picture perfect.
Consider, too, the unzillowables, hidden information not found in public databases. If buyers were told about the drunken neighbors, barking dogs, and swamp odors, there will be less interested buyers. Although unzillowables are not defects in the home, this information, if disclosed, would turn away buyers. Less buyers= Less sales.
One could further argue that less buyers = less demand= higher supply (inventory)= falling prices. So, ultimately, full transparency may lead to lower prices — good for buyers, not so good for sellers.
Is More Information Better Information?
Does more information really make for a better decision? Maybe not, if you look at the studies done by psychologist Paul B. Andreassen in the late 1980s. His series of experiments with MIT business students showed that more news does not necessarily translate into better information or better decisions.
Andreassen divided students into two groups. Each group picked a selection of stocks. One group saw only the changes in the stock prices– whether they had gone up or down. The second group saw the changes in price PLUS given a constant stream of financial news that supposedly explained what was happening with each stock. Surprisingly, the less-informed group did far better than the group that was given all the news. (I’d love to see this study)
The Game of Real Estate
Maybe the real estate transaction is like a poker game– to win the hand, you don’t show your cards. Maybe clients, or their agents, ought to wear sunglasses during negotiations, just like the pros.
Or maybe it’s like the game of love. To attract a mate, you have to cover the flaws, not expose them.
Postscript: Since this post only raises the question, I’d be curious to see any research on the subject. Based on your personal experiences, what’s your opinion?
Further Reading:
Too Much Information (Fast Company) Source for Andreassen studies.
Technorati Tags: transparency, home sales, buyers, sellers, zillow, unzillowable
I think I have dated that that gal in the photo ~ met her on Match.com
Seriously, your comment “Home sellers and prospective homebuyers have opposing goals” doesn’t seem to mesh with NAR’s slogan “Now is a great time to buy and sell a home”.
This has obviously been studied in great depth by the financial industry. Here’s a study from Oxford Journal;
http://rfs.oxfordjournals.org/cgi/content/abstract/20/2/235
From the abstract;
“Overall, adding transparency has either a neutral or a positive effect on liquidity. Increased transparency is not associated with greater trading volume. Except for very large trades, spreads on newly transparent bonds decline relative to bonds that experience no transparency change.”
It makes sense;
1) Theoretically (and hopefully), Realtors have always steered their clients away from BAD buys; and so increased transparency can’t reduce demand in the way your introductory paragraph suggests.
2) Transparency can obviously increase demand; hence the potential for a positive impact on liquidity. NYC is a great example of this; transparency is increasing international demand and so the NY RE market hasn’t taken much of a hit when compared to many west coast markets.
3) Transparency reduces risk which is probably its largest impact - or at least larger than the impact on liquidity - hence the decline in spreads noted in this study into bond trading.
4) Where transparency will have much less of an impact is on supply; which is why this study noted that the impact on liquidity is often neutral. If demand was already healthy, transparency won’t increase supply and hence no change in liquidity.
Short answer - no, transparency won’t decrease liquidity, in fact it often increases it while it also reduces risk.
10 days from now will mark the beginning of my 39th year in the business. The minute I began reading on the internet, long before I became a blogger myself, what I read about transparency cracked me up.
I don’t mean it isn’t required - in proper context. I mean it’s a relative concept.
Relative to what, you might ask?
Results. Ever had a baseball playing son come home from a game you were unable to attend? What was the first question on your mind - whether you asked it or not? Right - did your team win or lose? This was followed closely by - And how did you do?
Both questions based on ascertaining bottom line results.
As long as I am scrupulously honest, and operating at the highest level integrity demands, my clients don’t even bring up anything about so-called transparency.
They stay with us for the results they consistently enjoy.
Transparency is used by many (most?) as a smokescreen for getting into others’ business. Clients, both buyers, sellers, and exchangers, want maximum expertise, integrity, and experience.
But most of all, given those factors are in place - they want, they covet - RESULTS.
And if you are the one who consistently produces those desired results? You’ll be known as a real - producer.
Transparency is whatever today’s definition is. It seems to be pretty elastic, depending upon who is writing and under what context. In my opinion, it’s the concept de rigueur.
The only definition I’ve ever used or taught is honesty and integrity. The current definition? It appears to change with the agenda of the user.
Honesty and integrity never change due to agendas.
And results will remain the ultimate yardstick by which we are all measured.
The rest are just hot air or words on a page.
Thanks David. I will read the study.
Jeff,
I agree that the bottom line result is what matters. But is the bottom line the same for buyers and sellers? The two bottom lines, if you will, are Price and Time. (there may be other lines, like “the experience”, which is tied to intergrity, responsiveness, etc.)
The TIME bottom line is the same for both– get it done ASAP. But on PRICE the parties are at odds. Sellers want a higher price, buyers want to pay less. But buyers also do not want a house with a lot of defects. It is this conflict of interests that concerns me. Will full transparency (using Q&A as an example, to learn everything about anything) lead to less transactions? Does the buyer pool become shallower as more information (and with it more negative information) becomes available. We can all agree that with a smaller buyer pool (less demand), there are less bottom line sales and sales take more time. The next domino to fall is price. So maybe transparency ultimately leads to lower prices — a scary thought for sellers, jubilation for buyers.
As David G says, and I agree, real estate agents (representing buyers) will steer clients away from bad deals. (Sellers & their agents have no such duty) The more bad info out there, the more steerways for those homes. More steeraways equal a smaller buyer pool and less bottom line sales and more bottom line time to sell.
Transparency is honesty. People associate both terms with the side you consciously choose when you are asked to choose between: right or wrong, truth or deceit, transparent marketing of properties or fluff marketing of properties.
In my opinion, a property should match, as closely as possible, the experience that someone would have while walking through the property in person. Are there blemishes that the buyer might not see: for sure…they might not even be worthy of mention. But, fluffing your marketing to cover all that will be found in person is a joke that buyers will never appreciate being the subject of. My bet is that the number of buyers doesn’t change whether you are fluffing a property or not. If you get more exposure to a property, and match the walk through experience closely online…now you’re talking!
First let me say, I LOVE your portrait!!
Transparency…it’s a must. Perhaps, if more of us had been blogging we wouldn’t have so many homeowners in the mess they are in, now.
There will always be those that don’t want to know the ends and outs of every detail
but, at the same time
there are those, me being one, who DO want to know ALL so that I can decided what it is that is important to me in my decision making.
I’m all for transparency.
And without further adieu, congratulations on being selected as one of the Top 25 MOST Influential Bloggers!!
Way to go, guys!!!
Oh yeah….congrats guys!! Well done.
Thanks.
Yes, I am for transparency but not nakedness– in other words, I think there should be limits, primarily when homeowner privacy is concerned. For example, I support a homeowner if he does not want his home listed for sale on zillow, without his consent, or his agents, because he wants the right to determine how his home is marketed and where. I believe this is a right of the homeowner & transparency is not justification for infringing this right.
The transparency line is, of course, fuzzy. Does a seller need to disclose how many prior offers came in or whether he lost his job or how much he or she paid for the home? That may serve the buyer but not the seller.
Transparency seems like it might be a buyer’s tool.
But the question still remains— does full transparency produce less buyers, less sales, lower prices?
Christian– You are right. Sometimes a buyer can overlook defects if the overall feeling from visiting the home is positive– whether it be the room flow or the sweet smell of the moonflowers in the landscaped yard. Problem is that buyer may never visit the house if he or she gets turned off by reading online about defects (or a flawed zestimate).
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I guess maybe I am missing something here. Is there any transaction where money changes hands where there is full transparency? Cars? No. Stocks? Maybe some, but I would say not full. Even at Wal-Mart buying groceries or the like, we can’t absolutely be sure what we are buying.
I have only been in this business for about eight years, but I have been in the business world for about 20. I have always tried to conduct business with as much transparency as possible, making the goal of both parties to know as much as they wanted to know and answer any and all questions as well as I could. That is a business decision I made back years ago. Fortunately for me, although unfortunately for some consumers, some other real estate practioners choose not to conduct business this way.
Yes, seller and buyer goals oppose each other. But if each party really got what they wanted, the seller would make a million dollars and the buyer would get a free house. No amount of transparency, including full, will not change that. The key is to finding the middle ground where everyone will be satisfied, or at least 95% satisfied.
Sorry to ramble. Enjoy your blog very much.
Charles, I think that is the answer– finding the middle ground. The faster the parties get there, the better for all. Perhaps the greater the transparency, the faster to the middle if both parties want to go there.
Thanks for stopping by. And no worries about rambling here– this is a free rambling blog
Jeff Brown for NAR President! Touche!
That being said, the issue of transparency in our industry is a moving target. It seems that, during a brisk/rising market, transparency is less important than during a slower/stagnant or falling market. Obviously, the reason that real estate agents -AS A GROUP - have such little regard from the public is because of the lack of transparency, not only to buyers, but to their own sellers as well.
It would be interesting to know if buyers, represented by buyers agents felt as though that relationship provides them with more transparency in the transaction.
There’s this big rush to buyer agency, now that the market has shifted. The problem is, that so few agents understand fiduciary responsibility that for them, being a buyers agent is more of a marketing scheme than a way of doing business. I imagine that most agents who would even go to the trouble of “selling” a buyrer agency agreement to their buyer “clients” would not conduct themselves any dirrerently on the streets. Sad sentiment, but true.
Michael - My first move as NAR Prez would be to fire everyone and start over.
Sellius - In a metro sized region like my place - San Diego - there are, at any given time hundreds of buyers looking for a home. The premise that full transparency would eliminate many of them from the market is based on what? They weren’t serious in the first place? The discovery their future home might not be perfect? Geez, first Santa Claus is a lie, and now you tell me roofs wear out?
Anyone who seriously thinks buyers would be reduced by more than one by the existence of complete transparency would have to give me reasons not that wouldn’t sound like a Carlos Mencia routine.
Buyers buy - sellers sell - and the rest are pretenders.
Transparency is the latest catch phrase, and nothing more.
What about transparency for the buyer’s side? If the seller should be transparent then negotiations are unfair unless the buyer plays by the same rules. Buyer should answer: How much money do you have in the bank, why are you buying, why this house and not the 27 others, when do you have to be out of your current home…etc.
On a very loosely related tangent I was thinking this morning about a home that I have listed. I am the second lister and the owner acknowledges there is no comparison between my marketing and the previous lister who had it for a long time. Yet we are getting less showings. Could it be because I actually provide more information to the buyers and agents so that they don’t go see something that does not fit their needs? Anyway, just thinking out loud.
Quite agree Jeff, even though the loss of even one buyer still means a house sits on the market a little longer. And if the buyer pool is very shallow, that might be a lot longer. (Having just gone fishing, the one that got away meant I had less fish at the end of the day)
But here’s a scenario that I hope mimics real life.
You represent a seller. The house or area has some flaws which you are under no legal obligation to disclose (maybe it’s loud obnoxious neighbors, traffic noise, whatever)– a buyer’s questions or due diligence should uncover them. But the buyer doesn’t do his due diligence, doesn’t ask the right questions or somehow misses the flaws, which if he knew them he would not buy. So, under this scenario, am I to assume, in the name of transparency & full disclosure, that you will tell the buyer the flaws he missed and lose the deal for your client? Will you then tell your client– it was just one buyer he lost?
Sellius - This is where so-called transparency goes off the tracks.
If I’m representing the seller, I don’t even know the buyer.
Even if I do what you suggest - the buyer simply buys another home. He doesn’t exit the market.
If it was a double-end I would indeed tell the buyer about the noisy neighbor. I do more double-ends than the average five agents. I sometimes sit everyone down in the same room for Heaven’s sake.
Outside of insisting we sit in our underwear, how ‘transparent’ can we get? 
I represent who I represent. The slab is cracked? The other side is informed immediately - my policy dictates in the listing contract itself, and then any and all public docs we generate. Traffic? Neighbors? I represent the seller. The seller is represented by a pro.
The rest is fodder for coffee room talk.
You either are honest and operate from a foundation of integrity, or you don’t.
Jeff,
So is your answer– Yes I tell the buyer?
My definition of full transparency is full disclosure of every piece of information you know which could influence the decision to buy a home. That would include noisy, obnoxious neighbors, the new WalMart that’s being built across town but you know the traffic is going to come right through your neighborhood (a fact only a local expert would know), and the pee odor that seeped into the flooring under the carpet (that you won’t notice until after you pick up the rug). If you are prepared to VOLUNTEER this information when you represent the seller, that’s fine. (Do you tell the client this at the listing presentation?) It is certainly honest and moral. But is it contrary to your fiduciary obligation to the seller, your client? That’s what I’m trying to flesh out. Perhaps it is not your duty or obligation, as the LA, to represent the buyer’s interests as well– maybe it falls on the buyer or the buyer’s agent to investigate and ask the right questions.
This is what I am trying to explore– the limits of transparency and whether (1) it means less sales are made, or, stated another way, it takes longer to sell a home and (2) it conflicts with one’s fiduciary obligation to the seller.
And I disagree that the buyer just buys another home. Not necessarily. They may decide to rent.
PS: You’d have to remove your underwear to be fully transparent
Maureen
A very interesting and thought provoking comment. I wonder. Hmm.. someone must have done some research on this subject, beyond the study David G referenced..
Efficiency, in terms of only really interested buyers coming to see a home, has positive and negative effects. Yes, you don’t waste time with non-serious buyers (though that is subject to debate– home decorating ideas are always in demand) BUT you may take longer to sell the home and perhaps loose the opportunity to help buyers for whom the home is not a perfect fit, to find them another home– i.e, you might miss the opportunity to get a new client.
I am, and I think most agents are, honest. I believe that the whole angle that Zillow and Redfin use is to make consumer feel like they (Zillow/Redfin)are on the “side” of the consumer.
That’s my problem with all this “transparency” cr*p; those companies don’t have ANYWHERE near the access to CRITICAL information that I, for example, do.
They should drop the “we are giving you more information, thus, we are more in your corner” shpiel.
That would be a phenomenal case study, no?
Question:
Would complete and full transparency end “arms-length” transactions?
When playing poker, do you reveal your hand?
At the poker table REDFIN would be wearing sunglasses for sure.
Maureen - You bring up a great point. I work primarily with buyers and many do all sorts of things to try and hide things from not only the sellers, but me. Yet these same buyers want sellers to disclose everything to them and get upset when they don’t. Hypocritical if you ask me.
And stick with your idea about being honest about your listing(s). Our team does that through a blog that has all of our listings on it with the 3 best things about the property and…guess what?! The 3 worst things about the property. Perhaps we may get less traffic through our listings than others (sure you could argue that), but it’s better traffic. The buyers coming through are of better quality becuase they already know the not-so-good things about the property and have still chosen to preview it.
With all of this talk about underwear, I am now beginning to understand why attorneys work with briefs.
No wonder some people take it in the shorts
Kevin– right on
Danilo– now that’s creative marketing. I have to see one of those.
Phil– what can I say? You crack me up. Special post for you:
http://tinyurl.com/33olex
hi maureen!
maybe it’s the same buyer pool. maybe they saw it already with the previous listing agent. maybe you provided too much information. but, does traffic really matter or does finding the most qualified buyer who is ready to buy really matter?
the old school way of thinking is provide the bait and make them come and see it. in some instances this may be a good tactic. why? because sometimes, the darn information about a home or the picture or video doesn’t do the home justice. actually being there and envisioning yourself living there may sell the home better then anything we could have written about it. sometimes, a home just sells itself. go figure
I am all but certain that I haven’t dated HER yet
Jeff- I know you would.
According to Dictionary.com:
transparency
The full, accurate, and timely disclosure of information.
It’s not all that fancy, but it does the trick. Here you go - http://www.realdiablog.typepad.com/blogback/
Danilo,
I think that is brilliant.
Thanks!
Danilo -
Brilliant!!! That blog may have felt like a small step for you but it’s undoubtedly a GIANT leap for the industry. Nice work.