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Do secret home sale prices hurt buyers?

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Realtors 'protecting their interests'
"Realtors are trying to protect the value of their work product. It's not that they're restricting information, they're just restricting who has it. It's not that the real estate agent is simply trying to protect their interests -- clearly they are -- but they're trying to not give away that which they worked to earn, and they don't want the public being misled," says Jenks.

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R. Kelley Pace, director of the Real Estate Research Institute at Louisiana State University, says that while real estate markets generally benefit from full disclosure, the fact that sales price information is available from real estate agents -- those best placed to use them responsibly -- has minimized the impact of nondisclosure.

"If it's coming out of the MLS, it doesn't matter whether it's a disclosure state or not. Effectively they disclose the data and, in summarized form, that reaches the public," he says. "I don't know that it really makes a huge difference on disclosure in practice. I think that disclosure is probably a good thing, especially given that we're basing taxes and other things on it."

Nondisclosure a 'malignancy'
University of New Mexico economist Berrens has a different diagnosis: He views nondisclosure not as benign but malignant in several important respects.

In his paper, "What Price Nondisclosure? The Effects of Nondisclosure of Real Estate Sales Prices," co-written with tax expert Michael McKee and published in the June 2004 issue of Social Science Quarterly, Berrens contends that the failure of nondisclosure states to incorporate home sales prices into their assessment models contributes to property tax inequities, lost revenue, administrative inefficiencies and a host of other problems ranging from mortgage "redlining" to assessing (and challenging) damages from natural or manmade disasters to eminent domain fights.

I don't see this as the demise of the real estate agent; I see this as the demise of the 6 percent (commission) fee.

In Berren's view, the real estate industry's argument that sales prices are a proprietary work product are trumped by the greater public need to shore up waning state revenues and combat unfair property assessments and government land grabs.

Besides, he says, that work product is already widely available on Internet sites. As it becomes more accurate, it will almost certainly become less valuable to a real estate industry in the grips of a major power shift.

"I don't see this as the demise of the real estate agent; I see this as the demise of the 6 percent (commission) fee," says Berrens. "Previously, you had asymmetries in information on the market, where the seller knew a lot more than the buyer about a particular house and the real estate agents accumulated a lot of that information. A lot of that is now available on the Web."

Inefficiencies in the industry
Berrens predicts the trend toward open sales price disclosure -- New Mexico adopted it in 2004, Rhode Island in 2007 and Texas, the most populous remaining nondisclosure state, is considering it -- may soon change the way real estate agents bill for their services.

"I think you'll see many more menu-driven options available to people. Some Realtors will consider fixed-price services; 'Hey, you guys already found each other, for $500 I'll walk you through the paperwork.'

"There are inefficiencies in the real estate industry. That said, some people will still be willing to pay a Realtor and still want their hand held."

Bankrate.com's corrections policy -- Posted: May 31, 2007
 
 
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