Information Asymmetry in Real Estate Transactions and Its Impact on the Transaction Object
“Scientific Problems of Engineering Economics of Construction and Real Estate Management, Regions and Territories Development ICEREE’2019” organized within 60th International Scientific Conference of Riga Technical University: Book of Abstracts 2019
Jānis Vanags, Ineta Geipele, Linda Kauškale

The concept of information asymmetry is inherently multidimensional. Its content is closely related to social sciences such as psychology, economics, politics, etc. Different intelligence, cognitive abilities, perception of the environment, and purposefulness of individuals form the social basis of information asymmetry. It means that information asymmetry as a social phenomenon has emerged and developed along with the development of civilization. It is quite possible that information asymmetry exists in the animal world both within and among species. This is largely evidenced by indirect scientific research on animal sowing and its manifestation in a particular environment. Despite its rich history of development, the concept of information asymmetry only emerged in the academic world in the second half of the last century. In the subsequent years, the volume and depth of research in this area were increasing rapidly and reached the peak of scientific research already at the beginning of the 21st century, more precisely in 2001, when George Akerlof, Mikhail Spence and Joseph Stiglitz were awarded the Nobel Prize for market research under information asymmetry conditions. Information asymmetry plays an important role in the development of market economy. According to the classical economic theory, in a free market, full competition is only possible if the amount of information available to the buyer and seller about the transaction subject is similar. The difference in awareness is insignificant and cannot be used by the seller to increase the price of the item. Such a state of affairs tends to be termed in theory by the concept “perfect information”, which is the most important assumption in scientific research and for the development of regularities in the neoclassical economy. As the production of goods has diversified and their complexity increased, there has been an increase in information asymmetry between the buyer and seller used to manipulate price in favour of the seller. Information asymmetry has thus become one of the most important aspects for the regulation of the market economy by the relevant public authorities. Reducing information asymmetry has also been taken care of by market participants themselves. Already in the first half of the 14th century, the word “broker” was used in medieval England to identify a profession whose representatives were involved in buying the required premises for public authorities and selling the unnecessary ones. Over the decades, the term “broker” had been used in other Western European countries, phonetically adapting it to the language of the country concerned, but retaining the root of the word. Given the importance of brokerage activities in reducing information asymmetry, in many countries brokerage activity is governed by national laws and regulations. Brokerage services are a relatively new profession in Latvia. To a large extent, this is due to the brokers’ poor reputation among market participants, their low level of professionalism, and detected fraud cases. The effect of information asymmetry in the real estate market was very convincing after Latvia’s accession to the EU, when real estate speculators from Western Europe and North America appeared on the local real estate market. This situation was used by the companies operating in the real estate market in order to raise transaction prices. As a result, between 2003 and 2007 dwelling prices increased 2.5 times in the country, but in Riga – 4.4 times, in Jelgava – 5.2 times, in Liepāja – 4.7 times and in Rēzekne – 3.7 times. The most interesting thing is that such a rapid price increase has not been found in any national statistics for the past 100 years. Despite a considerable price increase, public authorities did not intervene in this process and banks continued to extend credit until 2008, when the recession hit. It is quite possibly one of the most vivid demonstrations of irresponsibility of public authorities in the European Union since its inception. Due to information asymmetry in the housing market, thousands of households got into a debt trap and were left without any work and livelihood. As a result, more than 100,000 people of working age left the country after the recession in the housing market.


Atslēgas vārdi
Information asymmetry; Real estate market; Housing prices; Broker
Hipersaite
http://buni.rtu.lv/wp-content/uploads/sites/68/2019/09/ICEREE-2019-Abstracts.pdf

Vanags, J., Geipele, I., Kauškale, L. Information Asymmetry in Real Estate Transactions and Its Impact on the Transaction Object. No: “Scientific Problems of Engineering Economics of Construction and Real Estate Management, Regions and Territories Development ICEREE’2019” organized within 60th International Scientific Conference of Riga Technical University: Book of Abstracts, Latvija, Riga, 27.-28. septembris, 2019. Riga: RTU Press, 2019, 49.-51.lpp. ISBN 978-9934-22-369-3.

Publikācijas valoda
English (en)
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