For a potential buyer, a house’s list price conveys only partial information. What the house sold for in the past and the sold price of recent comparables are equally desirable for a smart consumer.
Currently, potential homebuyers in Canada can search the MLS database online and explore structural details of housing units down to pictures of toilet bowls and shower stalls. They also have access to the current asking prices. What the houses sold for in the past is the forbidden fruit hidden behind the MLS firewall.
That information has also been the subject of a long and contentious legal battle between the Competition Bureau and the Toronto Real Estate Board, with the former hoping to make that data more accessible to the public, and the latter arguing it should be tightly held due to privacy issues.
The Federal Court of Appeal recently confirmed a ruling in favour of the Competition Bureau, but the case could yet find itself before the Supreme Court of Canada.
In a data-driven world where digitization of the economy has added unprecedented economic value, is it wise to argue against liberating data or restricting its dissemination by fax, phone, or hardcopy?
Real-time dissemination of housing sales data with a fuller set of information will open housing markets to innovative products and services. It will increase the size and scope of real estate markets for the benefit of realtors and consumers alike.
Timely and complete information leads to better decisions. A simple thought experiment can establish this fact. Let’s assume, as a prospective homebuyer, you have shortlisted two houses in different neighbourhoods. Both houses are priced at $995,000.
You visit both houses and learn from listing agents that the recent comparable sales averaged at $800,000 for one house and $650,000 for the other.
Will learning about the difference between a house’s list price and the average sale price of recent comparables change your perspective? One house is listed for 24 per cent more than comparables versus the other for 53 per cent more. If you had known the sale price of the comparables in advance of the visit, which required investing time and effort, would you have shortlisted the same two houses for a visit?
Latent in the sold price data are clues for homebuyers that influence their decision-making. As it stands today, homebuyers must obtain this information from real estate agents. This adds a lag in information dissemination that could affect expectations and perspectives.
The longer it takes to learn about the difference in a house’s asking price and the sold price of comparables, the more likely one is to develop preferences with incomplete information. This is not to suggest that consumers are incapable of revising their preferences when more information becomes available at a later stage. Nevertheless, we contend that consumers are more likely to make informed choices at the very beginning of a search conducted with full information as opposed to at even later stages of one in which information is released over time, or with restrictions on the way it is disseminated.
The case for keeping the sales price data out of the public’s direct reach is often made for privacy reasons. It has been argued that buyers and sellers would prefer sold prices to be kept offline. This is nothing more than a red herring.
Housing sales details, including the sold price, are a matter of public record and are available, albeit not readily, from municipal and other registries. To argue that sold price should only be revealed to customers by a real estate agent is akin to arguing that a legal verdict should only be shared via lawyers because of confidentiality reasons. But that’s not the case. One can readily access case history in Canada online with financial details of the litigants.
Equally relevant to the debate is the fate of pending sales data. Before a sale closes (and is officially registered by the authorities), it stays in a real estate purgatory often for a time varying between less than a week to many months. This implies that while a sale has been contracted, it hasn’t closed. For the timeliness of data, the pending sales price is the most relevant piece of information for future and impending sales and consumer decision-making.
If pending sales data and earlier sold prices were made available online, which many innovative brokers desire, it opens the door to innovative products. For instance, automated valuation models could be implemented accordingly to offer statistically robust estimates of housing values using real-time data to benefit buyers and sellers alike.
Bourses have been providing real-time data for stocks, bonds and other financial products for decades. The innovative financial products and services that resulted from real-time disclosure of financial data should be a cause of optimism for those opposing the liberation of real estate data.