[shawnee_]

Market forces can't really work effectively on the problem when there is information asymmetry, can they? Market forces presume rational behavior, and perfect information.

I will assume that the expected result of this startup (why YC invested in it) is that the market will somehow become more "efficient" because communication between brokers and landlords will be facilitated.

I will predict that the actual result of this startup will cause the market to become less efficient, due to the increased cost of information asymmetry. By hooking up brokers with landlords, the information asymmetry between the "producer" (both landlords and brokers would be considered "producers" of listings) and the "consumer" (the renter or home-buyer) becomes even greater.

A pretty interesting paper that explores the idea that the costs of derivatives are increased as a result information asymmetry: www.cs.princeton.edu/~rongge/derivative.pdf

So, the "cost" is being doubly passed on to the consumer from both the broker and the landlord. The market is not more efficient, it's less efficient.

In general, financial experts suspect that the sheer volume of derivative transactions probably allows many kinds of manipulations to go undetected. We are highlighting one particular kind of manipulation where this undetectability as well as its financial cost can be made precise. from http://www.cs.princeton.edu/~rongge/derivativeFAQ.html

[patio11]

Markets do not presume perfect information. They're a hack around the lack of it, because perfect information would make a price discovery / resource allocation mechanism unnecessary: you'd just use your godlike powers and pick the best investment at the optional price every single time. One of their handier properties is that they quickly aggregate valuable-but-imperfect information from an incredibly broad group of people to discover prices. They're certainly not perfect, but they often work.

[shawnee_]

You're right, my typo. I can't remember the exact verbatim text that my economics textbook cited, but one of the underlying assumptions of "market forces" economics is that information isn't unduly restricted; it's more or less accessible to any parties that want it. In this example, the MLS is blatant restriction of information, and it definitely creates information asymmetry.

[tptacek]

Far be it from me to stand athwart your argument against realtors, but: how effective can they be at seizing control of the market via the MLS? Yes, you have to be a real estate agent to list there, but when I bought my house in '05, I had no trouble at all getting access to MLS listings.

The MLS --- which, I probably agree, is a shady system --- is not some secret parchment guarded by the Stonecutters. Pretty much anyone can get access to it.

[thaumaturgy]

MLS availability varies from region to region according to the local board of realtors. And, even in regions where the MLS is generally available, that availability may be limited to specific agencies, with others not participating at all.

(Once upon a time I did some I.T. and software maintenance work for a number of local realtors and the local board.)

Oh, and also, various MLS interfaces (e.g. Paragon) provide a lot more information on properties than non-realtors have access to.

[pg]

Let me try again. Suppose I decide to rent out my house. The price I can get for it depends on how much people like it compared to other houses that are available. How is the amount of rent that I can get being gamed upward, in a way that it isn't if, for example, I decide to sell my car? (Unless you believe that used car prices are also inflated across the board.)

[thaumaturgy]

I'm renting a house now, and I've been shopping around for a store/office space for a few months now.

And, yes, prices are being held unnaturally high. If they weren't, I would expect to see far fewer empty storefronts than I do now -- and I've recently seen this not just in my local small town, but also in Sacramento, in the Bay Area, and even in Seattle.

Locally, I know for a fact that there are a number of property owners that would prefer to have their space sit empty rather than rent it out for the amounts that people are willing to pay right now. I've talked to them.

Housing is not that much different, except that at the moment there is higher-than-usual demand for rental properties, so the "market forces" are driving the prices upward. Still, unless you are a property owner who foolishly can't afford to let a building sit vacant, you can get away with charging higher rent than other people are for similar properties.

I agree with the person here saying that these effects are due to information asymmetry. As a prospective renter -- either for commercial or for housing space -- in order to find the best possible deal, I must invest a lot of time contacting numerous people, reviewing various Google Maps mashups, reviewing classifieds, and wandering around town. As a landlord, to set a price I simply have to take a quick glance at what nearby properties are going for, add a little bit to that amount, and then wait.

Eventually, a prospective renter will come along, because they don't know where the better deal is.

[jetaries]

The power the brokers have over landlords' is very limited, even in hot rental markets like Boston and NYC. The landlords set the price, and the brokers try to rent them (first hand experience). Unlike sales, typically, there is no exclusivity in rentals, it's first come first serve. Whoever rents the apartments get the prize. Which creates tremendous competition among brokers.

It is in the brokers' best interest that the landlords lower their price and pay a finder's fee. This makes the apartment easy to rent. The idea that somehow brokers bound together to control the price is simply untrue (this notion is somewhat true in sales). Landlords control the price based on supply / demand.

Everyone tend to think that brokers themselves represent market inefficiency, which is also debatable. Everyone knows Craigslist, and if they wanted to be on it, they can. Now, why do landlords go through brokers at all, knowing there is Craigslist?

Last but not least. The reason that renting is such a unpleasant experience lies in the nature of the business, and also what I call the Craigslist's dilema. If you are interested, I'd be happy to write another article to further elaborate on this point.

[notahacker]

I agree with your point about competition, and I also believe that a broker/agent with a sufficiently large list of property can add value to a search process (they ought to be better at identifying properties that fit your requirements than a couple of grainy photos and a list of bullet points, and competition induces them to show you the most suitable properties first).

Isn't the problem with Craigslist simply spam? The property for rent listings on Gumtree (UK equivalent of Craigslist which is very useful for finding flatshares which don't involve intermediaries) are rendered unusable by spam for fake properties put in place by letting agents who will then subsequently offer you something more expensive and less appealing that actually is on the market. Essentially the agents collecting lists of tenants with multiple fake properties crowd out anyone trying to directly list real properties.