Hayek would have hired a Realtor

Albert Einstein observed that the ‘the only source of knowledge is experience.’ I wonder how he would feel about all the time we spend viewing the world through our computer screens. Instead of shopping for items out in a physical environment, consumers sit in their living rooms and order things up.

Many speculated that the process of buying a home would become an on-line process. You would boot up your favorite platform, peruse the photos of a downtown condo that fits all your parameters, and fall in love with a striking skyline view. By submitting an offer electronically, the place could be yours.

Only it might be a bit uncomfortable when you take the rickety elevator up to the sixth-floor, walk down a hall with a maroon and green color scheme, turn the key to enter your new home only to discover the beautiful shot was taken while backed into a corner of the dining room.  There are no other scenic vistas to be seen.

If you relied only on computer images, you would miss that the pleasant greenery in the exterior photos does not do justice to the steep incline up to the neighbor’s backyard. The equally steep front approach would preclude your elderly relatives from visiting at the holidays and launch your toddler’s Big Wheel down into on-coming traffic.

Hard data can be opaque as well. Can numbers relay the chatter and bustle of school kids monopolizing the sidewalk as they walk between school campuses? Can transit schedules help you see how the car park is setup and whether there is a shelter for in climate weather?  Can you really know if the nearby rail road track will be a disturbance?

Information is not the same as knowledge.

Friedrich Hayek, an Austrian Economist from the early part of 20th century, believed that an essential part of a market is the knowledge of the parties to the transaction. He thought that a marketplace wasn’t set and stagnant but was a dynamic environment where the players are always repositioning themselves based on the signals they receive.

Pricing your home uniquely off sales data is automatically six to eight weeks out-of-date. A transaction needs to close before the sales price is released. There is always that delay between signing a purchase agreement and the day of closing so that both parties can get their affairs in order: time for interviewing movers, finalize mortgage financing, recruiting relatives to help pet sit on the day of the big move.

There is also a seasonality to the market. Activity in February, for instance, when it is twenty below outside and snow drifts keep clogging up your driveway, is a bit different than six weeks later in April.  There is a certain surge of consumer confidence that happens every spring in conjunction with spring bulbs pushing their way up through flower beds in the front lawn.

When sales data started appearing on-line about ten years ago, buyers and sellers were enthusiastic about following along with the price of listings, their market times and which ones secure a contract.  Although data is readily accessible, it is only one guide. This type of sales information is a freeze-frame snapshot, without any sense of direction of what is to come.

Perhaps the best proof of Hayek’s dynamism hypothesis in the marketplace is seen in a multiple offer scenario.  When prices are on the rise, sellers often receive more than one offer on their home as buyers compete for the listing. Buyers rush in to write an offer as they feel the home is easily worth the price being asked by the seller.  If there are two buyers, it is likely that one of the two may be willing to pay more than asking to beat out their competitor. If there are seven offers, the offer prices can inflate many thousands of dollars over the asking price.

What is of value to buyers in these circumstances is to know how high the typical offers run in each of these escalating price scenarios. Buyers want to secure the property while paying just a bit more than the nearest competing offer. The experienced realtor, one who is actively assisting both buyers and sellers, can help with what Hayek contributes to be key to markets: ‘the knowledge of the particular circumstances of time and place.’

There are many wonderful ways to get all sorts of data and beautiful photographs through the ever-present new technologies. But we don’t live in freeze frame data points; we don’t live in still photographs; we don’t commute on streets and walk our dogs on trails in an eerily computer-generated world.

Take advice from geniuses from the past. Einstein would have us experiencing homes and neighborhoods by touring them. Hayek teaches that insights are to be found in the participants’ knowledge in a given time and space.  That is why realtors have been assisting buyers and sellers for over one hundred years: to be their guides in their real estate transactions.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s