Housing Market “Analysis Paralysis”?
Posted by Jonathan J. Miller -Thursday, March 3, 2011, 6:30 AM
7 Comments
This recent article in The Real Deal magazine raises the issue of “analysis paralysis“.
About 10 years ago, the president of a small real estate brokerage company told me as we were walking down the street:
You know, Jonathan, I like your market reports except for the fact that there a too many numbers in them.
Admittedly I was a taken aback by the comment.
The disconnect between us in our role in the housing market was clear. I see the reports as a way of delivering information to help people be informed. This broker, who was successful and knowledgeable saw market research as raising more questions…and more comfortable with market reports in their previous form; as a brochure, a comfortable picture of a home filled a narrative on how wonderful it is to own a fine residence.
In other words, “ignorance is bliss” trumps “knowledge is power”?
I remember hearing developer Ian Schraeger use the phrase “Analysis Paralysis” in a Real Deal New Development Forum a while ago when he was lamenting the fact that everyone was overanalyzing the market and unable to decide whether to purchase.
I can appreciate a broker/developer’s frustration in getting the market to go in the direction they need it to. That’s called “having a vested interest in the outcome” and contradicts the purpose of market research in their mind. They make a living on enabling transactions. I understand that. However buyers and sellers need to be comfortable before they come out in droves and change the direction of a market. If they don’t feel as confident as the agent, then be patient. If the conditions the brokers see are valid, the buyers will come around. If they aren’t valid, they won’t.
That’s normal market behavior.
Being informed is not a bad thing.
Controlling information is more difficult than it was pre-internet. Witness Egypt, Tunisia, Libya, etc.
Controlling information has enabled dictators and millionaires, and part of what makes the real estate market “inefficient” is lack of information and mis-information.
As you observe, some brokers use controlling the information to make the deal. When information is available from other sources, I understand that may create a situation some brokers might resent?
Of course being informed is a good thing, always. The problem is where the information comes from and whether it is accurate. Doing that in the context of real property is the primary job of an appraiser.
Keep it up Johnathan!
To your point Edd, co-op transfers, which are 75% of the Manhattan owner occupied housing stock, weren’t public record until August 2006. Now its analysis paralysis with all this data to look at.
Jon – seems to me that there’s a simple solution for the small brokerage owner in question.
Let’s handle housing like stocks/bonds. The brokerage should buy it first from the seller. Then sell the house to a buyer. Let’s see if the broker thinks there’s too many numbers then when HIS capital is at stake.
aka Skin in the game.
Can I do the appraisals?
To take it a step further, on our $5B worth of annual appraisals, we will buy them all under the same premise. With all the buying and selling going on between appraisers and brokers, NYC would be awash in real estate transfer tax revenue! Problems solved!
Ok, need to settle down here. Tough to solve the world’s problems in one blog post.
A commenter says:
I recently had a deal where the customer was undecided between 2 properties. We discussed and I sent a page outlining the pros and cons of both. At the end of the page, I suggested tossing a coin and if the result was not pleasing, then the customer would know the real answer. Sure enough, the customer picked the property that I knew he preferred. In the end, it is really a personal decision. If you can feel yourself living there that can overcome a lot of negative information.
Perhaps it comes down to two views: logical and emotional. Analytics get you to the general vicinity and emotion drives the final decision. The two views can’t stand on their own without the other.
One other thought – I think the problem with “information overload” isn’t the amount of data – it’s the context. In other words, a metric might be falling, but 12 others are rising and yet the outlier is the one that gets all the attention. Or like following Case Shiller for your local market when its 5 months late, washes away seasonality and covers a huge region. When people are too overwhelmed to make a decision, they are usually looking for a trusted advisor, not someone who screams fire in a crowded theatre.
Jonathan and commenter,
Why would the mis-informers stop yelling and selling just because they have new found reliable sources of facts? I have a strong suspicion that sellers won’t give adverse facts equal exposure no matter what.
And tell me where it came from that the truth that may “set you free” is free (as in comp checks)?
And surely the final decision to buy or not to buy a residence to live in is emotional and facts don’t really matter much.
Another question is why appraisers ever believed we could rationally and logically adjust “one man’s meat is another’s poison.”
When in doubt flip a coin and put “head or tails” in your appraisal. I’d bet you have a 50/50 chance that way.