Truth in Advertising

I was minding my own business today at lunch. Idly munching on a sandwich reading the weekly Real Estate marketing newspaper's condo section when something dawned on me. It was like a bright light on a gray day, as if the clouds opened up and a single beam of sunlight had penetrated through creating my own little private opening of Highway to Heaven. What was this brilliant insight, you ask?

Truth in advertising. It's missing from the real estate market. But it's law in the securities industry. Why isn't truth in advertising required for the "investment" that is constantly being pumped in this town?

Case in point: The Julia is having a hard time selling out right now. The ad in question states "priced below market value to sell out the project." How can something be priced below market value? It simply can't. Market value is the value the market will bear and the only time somethings' market value can be determined is at the exact moment that it is sold. And market value is constantly changing as a result.

So they could have written priced below assessed value. Except that they haven't been assessed yet. They could have written priced below appraised value. Except appraised value has nothing to do with investing. And these "marketing systems" are about making me think I'm going to be rich by buying this over-priced 2-bedroom condo.

Market value tells me that there is a market for this product and the price will fluctuate. Telling me that I can buy a unit below market value is the same as telling me that I can buy the unit today and sell it for more tomorrow simply because I got it for less than market value. Which is clearly not true.

I also noticed that there are a number of Rennie wannabes springing up in this town. It seems every Realtor with a condo listing is somehow an owner of a Marketing System TM.

At one point in time in the BC Legislature a normal citizen could enter a bill for legislation to make a law. I'm not sure if this is still possible, but I believe it is time for all investments to be subject to the same disclosure laws as securities. I can see the headlines when the market turns "Angry citizens outraged by guaranteed investment salespeople, used to be known as Realtors."

Market Transparency

Transparency. It's a loaded word. How much of it exists in the land of All Things Real Estate Related?

After the DOT COM crash of 2002 and the subsequent ridiculous mess that was WorldCom and Enron, regulators in the US got serious about transparency and shareholder accountability. This is a good thing. Up here in the Great White North, we took things a bit less seriously, but made changes none the less. I might remind you that Canadians were involved at the heart of both Enron and WorldCom collapses; both as shareholders and executives. Our political system up here has resulted in 13 securities regulators all effectively working against each other under the auspicious umbrella of the Ontario Securities and Exchange Commission. This may change with Canada's New Government TM now finally taking a look at it. But what of real estate?

Real Estate is another self-regulated industry. Banks have effective control over mortgages and who gets one. But, especially in the past several decades, new lenders have emerged, many targeted towards the much more lucrative developer mortgage lending products. That industry is also self-regulated. What does all this mean? I'm not sure, but I'd wager that things really aren't all that transparent in this country when it comes to real estate buying, selling and investing in real estate-backed securities.

So where am I going with all this? Well, if (hypothetically :) ) 1981 happens all over again--you know, people lose their homes because they can't make their payments because interest rates went up--who is going to protect the consumer? Say you follow MSM coverage of the real estate market, you talk to a few Realtors, you check the MLS statistics and go read the CREA website, one could be considered fairly well "educated" about the state of the market, right? But what if those numbers suffer from similar "accounting irregularities" like those found in the files of Enron and WorldCom? What then?

We know for fact that Realtors have the ability to manipulate sales information. We know that it happens, but we don't know the true extent of it. Some may argue it's a limited problem, others may argue it is so common that it has become an accepted method of doing business. Either way, manipulation of true statistics is fraudulent. Is reducing our capacity to count stats also a form of reduced transparency? Now before you go getting your knickers in a knot, I am not suggesting that MLS is attempting to cut bloggers out of the picture. But is it not convenient that the new system of listings makes it very difficult, if not impossible, to track numbers that may already be manipulated before they are released?

My argument is this: the numbers MLS reports through CREA and local RE Boards are not really complete. They can't be. They ignore new product sales and listings that aren't sold through MLS. Yet because they represent the majority--to what extent we can't be completely sure--of listings and sales in any given RE market, they are the accepted authority in the MSM on the state of the RE markets around the nation. How the heck do we get around this? I'd really like to see some pro-active discussion about how this time the consumer can beat out the market to force a review of the way that our self-regulated RE industry reports its numbers.