Who makes a market?

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An anonymous reader takes me to task for crediting David Ogilvy with helping to keep the Greenwich luxury housing segment priced as high as it was for so long: “Brokers don't set prices, buyers and sellers do”, he says, and of course he’s right, in a broad sense, and he’s right that no small group of individuals can expect to forever hold back the tide against the collapse of our financial bubble and Connecticut’s own fiscal woes.

But what that reader isn’t accounting for is another factor: the gradual growth in transparency of our real estate data, a development that transformed a closed, secretive market into a (mostly) efficient one. Sellers, but especially buyers, were at the mercy of their agent, who at least legally, represented the seller. The buyers would present themselves at the broker’s office, be handed a small list of properties deemed suitable for them by the agent (with no pictures available), and be escorted off on the grand tour in the agent’s car: a Rolls Royce, in Marge Rowe’s case, more modest vehicles in others. In that environment, a prominent broker/agent like Ogilvy could opine on the value of a particular house and there was no one to gainsay him. So yes, I do credit him and some of his peers with inflating the value of many homes and propping them up with their puffery and secrecy.

The Internet and real estate sites like Zillow have dispersed much of that darkness, and buyers can see for themselves what’s going on. Better, the law was changed to permit “buyers’ representatives”, who owe their duty of loyalty to their client, rather than the seller, and are thus free to disclose their opinion on value and dish up any troubles in the seller’s personal life that might exert pressure to sell: divorce and pending indictments are always good for that, but downsizing, a murder in the basement, the rumored existence of a pederast next door, all can be useful.

There are still some barriers to transparency, though. I was able to shame the GAR into amending its “days on market” statistic so that brokers can no longer cancel a stale listing and replace it with a new one the same day and reset the clock. Now, there must be a six-month hiatus. Not perfect, but a buyer’s agent can tell you the real story. The “ask to sell ratio” is still with us, and is still useless, based as it is on the last price asked, and not the original. Of course it’s the last price — if it hadn’t sold, it wouldn’t have been the last price, so you can ignore that useless factoid.

I’m certainly no expert on Wall Street, but it strikes me that the same process has affected securities trading, with the same result: prices dropped, and boutique firms went the way of, say, David Ogilvy and Associates.