Confronting Information Asymmetries: Evidence from Real Estate Markets

Abstract

This paper studies the role of asymmetric information in commercial real estate markets in the U.S. and Canada. We propose a novel and exogenous measure of information based on the quality of property tax assessments in different regions and time periods. Employing direct and indirect information variables, we find strong evidence that information considerations are significant in real estate. We show that market participants resolve information asymmetries by purchasing nearby properties and by avoiding trades with informed professional brokers. There is some indication that purchasers also make use of informed intermediaries. The evidence that the choice of financing is used to address information concerns is mixed and fairly weak.

JEL Classification: R00