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How the Inefficiency of the Real Estate Market Benefits Comp

by tannertorchia309

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There’s no telling what the future holds; but that doesn’t stop people from making intelligent forecasts on market behavior. One theory applied in this speculation is the 50-year-old concept of the efficient market hypothesis (EMH). Even real estate investment companies such asthe reputable Marquis Properties, LLC are supposedly affected by this…or are they?


At a glance


EMH is rooted in the principle that information is crucial to determining the price of an asset. The word “efficient” pertains to the perceived market characteristic of “instantly incorporating” all available information at any given time. It’s associated with the “random walk” concept, which states that the prices of goods tomorrow will have nothing to do with their prices today. Taken together, both theories set forth an idea of the market that is random, independent, and “unbeatable.”


The last refers to the futility of investor analysis. Simply put, you can’t beat the unpredictable market, regardless of how carefully you analyze data. The price of an asset already reflects current market news and information, something which is made available to every other investor as well. In other words, it’s not just the market you can’t beat; EMH believes that the nature of the market won’t allow you to get an edge over countless other investors either.


In real estate


EMH, in general, is as much of a construct as the perfect man or woman. Critics say that assets cannot always be accurately priced, and that there is room to deviate from the available market information to beat other investors (and, it follows, the market itself). This imperfection or inefficiency plays a key role in a stable market, particularly in real estate.


Operating under an inefficient market premise, the buyer and seller will have more leg room to negotiate price. Real estate investment companies like Marquis Properties, LLC in Provo, UT believe that real estate transactions are largely determined by the unique circumstances of the buyer and seller, having little to do with the market. Strategic negotiation allows for pricing flexibility; and the price of a property can be much higher or lower than its intrinsic value depending on the agreement of both parties.


An inefficient market leaves every man for himself in a battle of wits. There are ways to beat the system, but you need to have the right people in your corner to help you.

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