Pakistan Institute of Development Economics

Property Agents and the Question of Real Estate Market Capture
Discourse Vol 3, Issue 3
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Property Agents and the Question of Real Estate Market Capture

Publication Year : 2022

Outlining    the    Issue:    Purchasing a    vehicle   from    another   individual owner (or second  hand vehicle as  we commonly call it)  has become a  rather easy  process   in  Pakistan.   Displaying a small  paper on the vehicle back windscreen  with  “For  Sale”  written on it along with the owner’s contact information though  is still  practiced  by a few people, but has at large gone out of fashion. But Why?

The reason is the emergence of alternate platforms for buying and selling of vehicles.  A significant  number  of car dealers  now exist in  all urban areas of the country who  have the vehicles at display and present and available for inspection  by potential  buyers  round the clock. Additionally, multiple online market  places  exist where sellers  can enlist  their  vehicles  and  buyers  can view all vehicle details and owner information. Such an increased level of information  availability as well as large number of buyers and sellers means no one individual,  group  or party is  able to  manipulate the  prices,  instead  the market forces of  demand  and supply act as the primary determinants of transaction price.

No  Practical  Way  to  Escape  a Real Estate Agent!

On the contrary, the real  estate  market is  the  complete  opposite.  Significant information  asymmetries  exist  in  the market which has meant that the real estate  agents  wield  too  much  power when  it  comes  to  setting  prices  and facilitating    transactions.    This   often is   at  the   disadvantage   of  the  main transacting  parties, who in the absence of market information have to resort to working through the real estate agents.

Wait,     Don’t     We     Have    Online Platforms Now?

Recently        alternative        platforms, particularly  online ones  have surfaced, but even a layman’s view of the listings on these platforms reveals that most of the  listings  are posted  and managed by  real  estate  agents  and  not  them property    owners/sellers    themselves. Although there is no restriction on who can or not post of these  platforms,  but having  the  same   real   estate   agents involved  in   most  of the  transactions on these platforms very often defeats that  main philosophical  reasoning for having them:   these  online  platforms connecting  sellers and buyers directly without the need for a  middleman i.e. a real estate agent.

How  Real   Estate  Agents   Influence Prices and Market Trends?

To  think  that  every real  estate  broker is  capable of manipulating  the  market trends would be equally foolish though. Instead,  the  entire   market  has been captured  by only a  handful  of brokers. These  brokers   are  backed  by  rich investors who buy multiple  properties, usually as  soon  as  they  are launched. Then based on their own interests,  the supply and demand of these real estate properties    is     manipulated    through putting  more earlier bought properties on  sale  and  increased   marketing   of these  properties   via  the   same   real estate  brokers.  This way they  are also able to dictate the market prices of the real  estate  properties,  thus,  becoming price setters in the real estate markets.

This price setting powers of the brokers makes it even more difficult for the individual  buyer and sellers to conduct a  transaction. Without the advice and help of these real  estate  brokers,  no buyer is able to sell their property and no seller is able to buy. The information asymmetry about the property and the buyer intention  initially always remains a  cause of distrust  among  the  buyer and seller.  Other  inefficiencies  in the entire system also add importance to the role of real estate brokers.

Real   Estate   Agents   Also  Perform Critical  Functions

There exists no mechanism for buyers to be able to verify the ownership details and property  history, while the sellers are provided with  no protection in case the potential  buyer turns out to  be a fraudster or for any other  reason does not live up to their end of the deal. In such  a scenario, the role of real estate brokers is further enhanced. This is why we see brokers not only connecting buyers  and sellers  and  helping  them negotiate a  deal,  but also performing other duties. The presence of brokers adds the factor of trust among the parties involved, who also help in completing through  the entire transfer process which has been made too document  oriented   and  complex  for a  common  person to  understand and give time to complete. The broker takes upon the responsibility of fulfilling  all the prior requirements of the notifying authority allowing the buyer and seller to  show  up only  to  sign  the transfer papers and making the payment.

Who is to Blame more — Real  Estate Agents, or Poor Institutions and Governance?

It is not all evil on the side of real estate brokers. In fact, it is not them who might have managed to strong arm the system into caving in to their antics.  Instead,  it is the responsibility of the policy makers and  regulators  to   develop  effective and efficient  market mechanisms that prepare  a   level  playing  field  for  all parties involved and does not allow any one agent or party involved to gain the price setting and market manipulation powers.   It  is   of  utmost  importance that regulatory authorities must act immediately to remove the information asymmetry  in  the  real  estate  market by digitizing the real estate ownership record and making the data publicly available.  Multiple  listing  system  must be  introduced  and  made  mandatory for  real  estate  transactions.  This will allow all parties to  perform  their role efficiently while not being under threat of   being   overpowered   or  deceived by another. Market will be driven through the demand and supply forces which shall also become the price determinants.