International Real Estate Investing

In Praise Of The Efficient Market (And How To Survive Without One)

June 28, 2010, Panama City, Panama: In a real estate market without a Multiple Listing Service, you must meet with as many local real estate agents as possible to get any idea what’s really available for sale.

Dear Live and Invest Overseas Reader,

I attended a real estate committee meeting of the American Chamber of Commerce of Panama earlier this month. One of the subjects discussed was the formal implementation of a multiple listing service in Panama.

More and more countries or regions are attempting this--to put in place a multiple listing service (MLS). Functional MLS's operate in Buenos Aires, Roatan in Honduras, and in some localized markets within Mexico. I've seen an MLS in Spain, too, but I wouldn't call it functional.

The difficulty with an MLS system is getting the local brokers and agents to use it. It took years of effort before the system in place on the Bay Island of Roatan became an effective tool for real estate professionals and buyers. Brokers were used to keeping 100% of the commissions themselves, and most weren't interested in splitting commissions, even if it meant that, in the end, they could do more total business and make more money. Eventually, though, thanks to persistent efforts by U.S. real estate agents who'd migrated to this island and who understood the long-term benefits and bonuses of an MLS, the agents on Roatan have come around and the island system appears to be working.

More than computer software and systems, what's required to make the leap from a typical emerging real estate market to an efficient one with a functioning MLS in place is education, not only of the brokers and agents but also of the sellers. In truth, the sellers are the real hurdle. Sellers who don't understand that an MLS gives their property more exposure won't sign an exclusive listing agreement. They shop brokers, just as buyers then must do. And, many times, it's the sellers who are the culprits when it comes to pricing, listing their properties with different agents at different prices. They tell one broker they want US$X, and tell another they want US$Y. If they get an offer at US$X, they then can reply to say, no, the price is now US$Y and show the other listing sheet.

A functioning MLS has many benefits, one of which is the statistics that it helps to accumulate (assuming everyone is entering correct data into the system). Without an MLS, statistics on sales prices, list prices, and volume of properties sold is non-existent. You have nothing but word-of-mouth from brokers and real estate attorneys to rely on.

And you can't rely on what the brokers or, often, the attorneys report at all.

So what is a would-be real estate buyer to do when shopping for a piece of real estate in a market with no MLS? A lot of ground work.

When you go into a fragmented market with no MLS, you need to work with multiple real estate agents, as many as possible. That is the only way to see a wide range of properties and to get an idea what's really available. Work with just one real estate agent, and you'll see only what he has listed. If it's a large multi-office company, that could be lots of properties. If it's a single broker office, it could be 10 properties. In no case, though, no matter how big the agency, will you find out this way about all properties currently on the market.

This is true not only in markets below the Rio Grande, but in ones across the Pond, as well. When we moved to Ireland 13 years ago, for example, we were surprised to find that the first real estate agent we met with told us he had but three properties to show us. It wasn't until we'd met with a second agent that we began to understand. In the end, we met with six real estate agents before finding the house we eventually purchased. Along the way, we were shown lots of houses that didn't interest us at all. If an agent didn't have something that met our criteria, he took us to see whatever he did have on his books. We wanted old, country, and Georgian but were shown many just-built estate bungalows in town. These guys have a lot of experience, it seems, at trying to make a round peg fit into a square hole.

In addition to the brokers, you also want to check out local newspapers and real estate magazines where sellers might list their properties. It can be difficult to follow up on anything you find this way if you don't speak the local language, but the exercise will help give you an idea of market pricing.

Everyone hits the Internet before heading off to a country where they are interested in buying a piece of real estate. The Internet is a dangerous thing. Once posted, listings are often never taken down. You can find something posted at a great price...without realizing that the posting is a couple of years old. That piece of real estate likely has sold, and, if not, the pricing likely has changed.

Furthermore, in many cases, Internet listings amount to fishing exhibitions aimed at the uneducated, inexperienced, long-distance buyer who doesn't know what anything should cost in said long-distance market and may have more money than sense. In fact, real estate agents count on this when it comes to foreign buyers.

A reader wrote me recently complaining that the "MLS" listings he was finding on the Internet in a certain country weren't professional and didn't include all the information he was looking for for each property included.

What he didn't understand was that the listings he was finding weren't part of an MLS at all. The market where he was shopping has no MLS. The real estate agency website he was referencing was calling its listings an "MLS," but it was an "MLS" that included only that agency's listings!

I say again, to buy wisely and well in most markets outside the United States, you'll have to put in time on the ground, speaking with as many real estate agents as possible, looking at as many individual properties as possible, speaking with local real estate attorneys, reviewing the classified ad sections of the local papers, etc.

Right now, this is the case in Panama, but those at the AMCHAM meeting this month promised not for much longer. They intend to have the bones of an MLS system in place (the software, etc.) by the end of this year. Then they'll begin the hard work of convincing agents and sellers to use it.

I wish them Buena suerte.

Lief Simon

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